Page 8 - FINAL CFA II SLIDES JUNE 2019 DAY 5.2

REPORTING OF INTERCORPORATE READING 14: INTERCORPORATE INVESTMENTS
INVESTMENTS (PRE IFRS 9)

MODULE 14.2: FINANCIAL ASSETS, PART 1
Financial Assets (& liabilities)
< 20% is usually considered passive.

Acquisition recorded at cost (presumably the FV), and any dividend or interest income is recognized in the investor’s income statement.

Recognizing the change in FV depends on their classification:

1. Held-to-maturity: Long-term ones reported on the balance sheet at amortized cost (original cost plus any discount, or minus any
premium amortized to date).

2. Held-for-trading: Reported on the balance sheet at FV; FV changes, both realized and unrealized, are recognized in the income
statement along with any dividend or interest income.

3. Designated at fair value: Choice open to report above two at FV to reduce volatility and inconsistencies that result from measuring
assets and liabilities using different valuation bases. Unrealized gains and losses are recognized on the income statement, similar to
the treatment of held-for-trading securities.

4. Available-for-sale: Neither held-to-maturity nor held-for-trading, these are reported on the balance sheet at FV. However:
• Only the realized gains or losses, and the dividend or interest income, are recognized in the income statement.
• Unrealized gains and losses (net of taxes) are excluded from the income statement and are reported as a separate component
of stockholders’ equity (in other comprehensive income). Once sold, unrealized gains and losses are removed from other
comprehensive income and recognized in the income statement.

IFRS = U.S. GAAP treatment, except for:
• Unrealized gains or losses from foreign exchange movements.
• Under IFRS, those from ‘available-for-sale debt’ are recognized in the income statement under IFRS.
• Under U.S GAAP, the entire unrealized gain or loss is recognized in equity under U.S. GAAP.

For available for-sale equity securities, the treatment under IFRS is similar to the treatment under U.S. GAAP.