Equity Investment: Strategic and Nonstrategic Methods for Fair

School: University of Toronto - Course: RSM LEC - Subject: Accounting

RSM 321 - ADVANCED ACCT EQUITY INVESTMENT Equity Investment: strategic & nonstrategic strategic: LT operating relationship with influence over the strategic decision full control, joint control, significant influence nonstrategic: reasonable rate of return without ability to place active role -trend to measure more assets at fair value on an annual basis -IFRS 9: present relevant, useful information to users; all nonstrategic equity measured at FAIR VALUE investments without quoted market price at active market at COST -Nonstrategic Investments must be reported at FAIR VALUE -present fair value changes on equity investments (not held for trading) in OCI -G/L cleared out of AOCI & transferred directly to retained earning when sold Fair value: the price that'd be received when selling or paid to transfer a liability Strategic Investment: Unrealized G/L Not applicable Joint control, significant influence: EQUITY method Control: consolidation Nonstrategic Investment: FV-PL: Fair value method, U.G/L in Net Income (NI) FV-OCI: Fair value method, U.G/L in OCI IFRS 9: FVTPL & FVTOCI FV-PL: current asset if actively traded or intended to be sold within a year measured at fair value -FVTPL measured at fair value & Unrealized G/L reported in Net Income FV-OCI: typically classified as non-current asset -FVOCI measured at fair value & report all unrealized G/L in OCI -Dividend income reported in NI when declared -cumulative G/L cleared out of AOCI and transferred directly to retained earnings -transfer to R/E occur when investment is sold or derecognized by can be done anytime Investments reported at fair value at each reporting date under both methods AOCI is NOT included in retained earnings; separate component of S/H EQ Investment must be written down when impairment Liquidating dividend reported as dividend income under COST method -liquidating divided: when cumulative dividends paid out > the cumulative net income -cannot distribute as income more than its earnings (이렇게 되면returning part of investment) -In COST method, income is recognized when dividends are received or receivable Investment 95k Cash 95k Cash 8k Dividend Income 8k Cash 99k

Investment 95k Gain on sale (report NI) 4k