Describe the accounting Understand the accounting for

17-4 5. Understand the accounting for equity investments at fair value.

6. Explain the equity method of

accounting and compare it to the fair value method for equity investments. 7. Discuss the accounting for impairments of debt investments. 8. Describe the accounting for transfer of investments between categories. After studying this chapter, you should be able to: Investments LEARNING OBJECTIVES

1. Describe the accounting

framework for financial assets. 2. Understand the accounting for debt investments at amortized cost. 3. Understand the accounting for debt investments at fair value. 4. Describe the accounting for the fair value option. 17-5 Financial Asset  Cash.  Equity investment of another company e.g., ordinary or preference shares.  Contractual right to receive cash from another party e.g., loans, receivables, and bonds. IASB requires that companies classify financial assets into two measurement categories —amortized cost and fair value— depending on the circumstances. LO 1 17-6 Measurement Basis —A Closer Look IFRS requires that companies measure their financial assets based on two criteria:  Company’s business model for managing its financial assets; and  Contractual cash flow characteristics of the financial asset. Only debt investments such as receivables, loans, and bond investments that meet the two criteria above are recorded at amortized cost. All other debt investments are recorded and reported at fair value. LO 1 17-7 Measurement Basis —A Closer Look Equity investments are generally recorded and reported at fair value. LO 1 ILLUSTRATION 17-1 Summary of Investment Accounting Approaches 17-8 5. Understand the accounting for equity investments at fair value.

6. Explain the equity method of

accounting and compare it to the fair value method for equity investments. 7. Discuss the accounting for impairments of debt investments. 8. Describe the accounting for transfer of investments between categories. After studying this chapter, you should be able to: Investments LEARNING OBJECTIVES 1. Describe the accounting framework for financial assets.

2. Understand the accounting for

debt investments at amortized cost. 3. Understand the accounting for debt investments at fair value. 4. Describe the accounting for the fair value option. 17-9 Debt investments are characterized by contractual payments on specified dates of  principal and  interest on the principal amount outstanding. Companies measure debt investments at  amortized cost or  fair value. LO 2 17-10 Illustration: Robinson Company purchased €100,000 of 8 bonds of Evermaster Corporation on January 1, 2015, at a discount, paying €92,278. The bonds mature January 1, 2020 and yield 10; interest is payable each July 1 and January 1. Robinson records the investment as follows: January 1, 2015 Debt Investments 92,278 Cash 92,278 LO 2 17-11 LO 2 ILLUSTRATION 17-2 17-12 Cash 4,000 Debt Investments 614 Interest Revenue 4,614 Debt Investments —Amortized Cost LO 2 ILLUSTRATION 17-2 Robinson Company records the receipt of the first semiannual interest payment on July 1, 2015, as follows: 17-13 Interest Receivable 4,000 Debt Investments 645 Interest Revenue 4,645 Debt Investments —Amortized Cost LO 2 ILLUSTRATION 17-2 Because Robinson is on a calendar-year basis, it accrues interest and amortizes the discount at December 31, 2015, as follows: 17-14 Reporting of Bond Investment at Amortized Cost ILLUSTRATION 17-3 Debt Investments —Amortized Cost LO 2 17-15 ILLUSTRATION 17-2 Assume that Robinson Company sells its investment on November 1, 2017, at 99¾ plus accrued interest. Robinson records this discount amortization as follows: €783 x 46 = €522 LO 2 Debt Investments 522 Interest Revenue 522 17-16 Computation Gain on Sale of Bonds Cash 102,417 Interest Revenue 46 x €4,000 2,667 Debt Investments 96,193 Gain on Sale of Debt Investments 3,557 ILLUSTRATION 17-4 Debt Investments —Amortized Cost LO 2 17-17 5. Understand the accounting for equity