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Investment Alternatives

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					     Investment Alternatives
n   Consolidation
n   Equity Method
n   Cost Method
n   Held to Maturity
n   Available for Sale
                         Mark-to-Market
n   Trading Securities




                                          15-1
    Investment Alternatives
n   Note the Tables on p. 621 and 644

n   Keep significant influence in mind




                                         15-2
            Held to Maturity
n   Bond accounting
    n   Bond valuation
                                  More in Chap.
    n   Investment revenue        14

    n   Bond amortization table
n   Discounts and premiums




                                                  15-3
         Trading Securities
n   Unrealized holding gains & losses: in earnings
n   Under SFAS 157, Fair Value Measurements, a
    valuation allowance is now used to revalue the
    investment
n   Note treatment of gain or loss on sale




                                                15-4
            Available for Sale
n   Same as accounting for trading securities except for
    OCI treatment
n   Record at cost
n   Dividends & interest: in earnings
n   Realized gains & losses: in earnings
n   Unrealized holding gains & losses: in OCI
n   See p. 629


                                                    15-5
                   Reporting
n   Balance sheet
n   Income statement
n   Statement of cash flows
    n   Trading: operating cash
    n   Other: investing cash
n   Statement of shareholders’ equity



                                        15-6
     Permanent Impairment
n   Adjust & include in earnings
n   Continue with normal accounting for HTM and
    AFS after the impairment




                                              15-7
                  Transfers
n   Mark-to-market first
n   To trading: include unrealized holding gains &
    losses in earnings
n   From trading: no P & L adjustment
n   HTM to AFS: unrealized holding gains &
    losses in OCI
n   AFS to HTM: amortize unrealized holding
    gains & losses


                                                     15-8
        Fair Value Options
n   SFAS 159
n   Irrevocable
n   Simply treat the HTM or AFS security as a
    trading security
n   P. 637 and 653




                                                15-9
                     Disclosure
n   Aggregate fair value
n   Gross realized & unrealized holding gains
n   Gross realized & unrealized holding losses
n   Change in net unrealized holding gains & losses
n   Amortized cost basis by major security type--see p.
    642



                                                    15-10
  Investor Has Significant
Influence—the Equity Method
n   Again note the impact of significant influence
n   Record at cost
n   Reflect % of net inc. or loss in investment acct.
    n   Zero floor concept
n   Decrease invest. acct. for div. rec’d.
n   Acquisitions in excess of BV-p.647-649
n   Fair value option is also available: separately
    reported

                                                      15-11
      Significant Influence
n   Generally between 20% and 50% ownership
n   Exceptions: see p. 644




                                              15-12
    Change in Circumstances
n   From equity: discontinue equity
n   To equity: restatement & adjustment to R/E




                                                 15-13

				
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posted:10/8/2013
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