Financial Accounting:A Managerial Perspective

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A Managerial PerspectiveFourth Edition

Prepared by R. NarayanaswamyIndian Institute of Management Bangalore

Chapter 8

Investments

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Investments

Investments in Perspective

� What is an investment?

� Why do firms hold investments?

� Types of investments

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� Types of investments

� Accounting for investments

Financial Instruments and Financial Assets

� What is a financial instrument?

� What is a financial asset?

� “Contractual claim”

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� “Contractual claim”

Equity and Debt Investments

� “Financial investments”

� Financial assets at fair value through profit and loss account

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profit and loss account

� Held-to-maturity investments

� Loans and receivables

� Available-for-sale financial assets

Financial Assets at Fair Value through Profit and Loss Account

� What are financial assets at fair value through profit and loss account?

� “Held-for-trading”

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� “Held-for-trading”

� Fair value accounting

� Initial measurement

� Subsequent measurement

� Recognition of gains and losses

� Financial assets carried at cost

Held-to-maturity Investments

� What are held-to-maturity investments?

� Exclusions

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� Exclusions

� Initial measurement

� Amortized cost

� Effective interest method� Internal rate of return

� “Tainting” provisions

Loans and Receivables

� What are loans and receivables?

� Exclusions

� Initial measurement

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� Initial measurement

� Subsequent measurement

� Amortized cost

Available-for-sale Financial Assets

� What are available-for-sale financial assets?

� Initial measurement

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� Initial measurement

� Subsequent measurement

� Other comprehensive income

Impairment of Financial Assets

� Categories of financial assets to be reviewed for impairment

� “Objective evidence” of impairment

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� “Objective evidence” of impairment

� Measuring impairment� Financial assets carried at amortized cost

� Financial assets carried at cost

� Available-for-sale financial assets

Equity Investments for Business Purposes

� Reasons for equity investments for business purposes

� “Operating investments” vs. “financial investments”

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� “Operating investments” vs. “financial investments”

� Accounting considerations

� Subsidiaries

� Joint ventures

� Associates

Subsidiaries

� Subsidiary

� Parent

� Group

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� Group

� Control� Voting power

� Other means

Consolidated Financial Statements

� Why do we need consolidated financial statements?

� Consolidation

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� Consolidation

� Steps in consolidation

� Non-controlling interests (or minority interests)

� Consolidation requirements

� Exemption from consolidation

Business Combination

� What is a business combination?

� Acquirer

� Acquiree

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� Acquiree

� Acquisition

� Goodwill

� Acquisition method (or purchase method)

� Measuring non-controlling interests

Consolidated Financial Statements and Business Combination Illustrated

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Consolidated Financial Statements and Business Combination Illustrated

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Consolidated Financial Statements and Business Combination Illustrated

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Consolidated Financial Statements and Business Combination Illustrated

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Consolidated Financial Statements and Business Combination Illustrated

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Consolidated Financial Statements and Business Combination Illustrated

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Joint Ventures

� What is a joint venture?

� Joint control

� Venturer

� Investor in a joint venture

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� Investor in a joint venture

� Jointly controlled operations

� Jointly controlled assets

� Jointly controlled entities

� Proportionate consolidation

� Proportionate consolidation requirements

� Exemption from proportionate consolidation

Associates

� What is an associate?

� Significant influence

� Equity method

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� Equity method

� Fair value adjustment

� Goodwill

� Exemption from the equity method

Investments in Separate Financial Statements

� Separate financial statements

� Investment

� Dividend income

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� Dividend income

Investment Property

� What is investment property?

� Fair value model

� Cost model

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� Cost model

End of Chapter 8

Investments

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Investments