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Summary Modern Advanced Accounting in Canada 8th ED Chapter 2
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Ch 2. Investments in Equity SecuritesEquity Investments- The Big Picture
- How should a Canadian company report an investment in shares of another company in
its FS?
o Equity investments are investments in shares of another company.
Strategic- investor intends or establish a long-term operatng relatonship
with the entty and has some level of infuence over the strategic
decisions of the investee company
Level of infuence- full, joint and signifcant infuence
Not reported at fair value
Non-strategic- investor wants a reasonable rate of return without actve
role in strategic decisions
IFRS 9
2018 – non strategic investments in private companies must be
reported at fair value (IFRS 9)
If recent informaton is insufcient to measure fair value or if
there is a wide range of possible fair value and cost represents the
best estmate of fair value within that range, use cost.
Cost is never the best estmate of fair value for investments in
quoted equity instruments
No specifc provisions for available for sales investments- ccan
elect to present the fair value changes on an equity investment no
held for trading in OCI.
Signifcant change- gains or losses are cleared out of accumulated
OCI directly to retained earnings (NEVER recycle to net income)
Available for sale investments eliminated as separate category of
investments
Type Reportng method Reportng of Unrealized
Gains/Losses
Strategic investments
- Signifcant infuence Equity NA
- Control Consolidaton NA
- Joint control Equity NA
Nonstrategic investments
- FVTPL (fair value FV method In net income
through proft or loss)
- Other- elect FVTOCI FV method In OCI
(FV through OCI)
LO2 Investments Measured At Fair Value
- Unrealized gains and losses
, o reported in net income for FVTPL investments
o reported in OCI for FVTOCI
*See example in pg 66
Investments Not Measured at Fair Value
- Usually reported using cost or equity method
LO3 Cost Method of Reportng an Equity Investment
- Cost method under IFRS- Used for external and internal recording purposes
o Investments in controlled enttes- when reportng entty prepares separate
entty fnancial statements in additon to or instead of consolidated fnancial
statements
o Available for sale investments with no quoted market price and FV cannot be
reliably measured-
o Parent company’s internal accountng records prior to preparing consolidated
fnancial statements
- Cost method under ASPE
o Allowed under ASPE for equity investment not quoted in an actve market
- Cost method
o investment initally recorded at cost
o Investor’s share of dividends declared reported in net income
o Reported at original cost at each reportng date unless the investment becomes
impaired
o Impairment losses reported in net income
o Realized gains or losses in net income
LO4. Equity Method of Reportng an Investment in Associate
- Investment in a corporate that permit the investor to exercise signifcant infuence over
the strategic operatng and fnancing policies of the investee
o Required only the ability to exercise signifcant infuence. No requirement to
show that such infuence is actually used.
- Possible indicators of signifcant infuence
o Representaton on the board of directors or equivalent governing body of the
investee
o Partcipatng in policy0making processes, including partcipaton in decisions
about dividends or other distributons
o Material transactons between the investor and the investee
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