Summary Modern Advanced Accounting in Canada 8th ED Chapter 2

Ch 2. Investments in Equity Securites

Equity 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