Chapter 8: investments
Learning objective 1: Explain
Explain why entities invest and what they invest in
Different kinds of investments
Equipment
Inventory
Investing in financial assets
Reasons to invest
Excess cash
Long-term strategic objectives
o Controlling another company
Categories of security to invest in
1. Equity securities (shares)
a. Investor: owns share of corporation Share: represents ownership
b. Investee: issues the share
Potential return
2. Debt securities (bonds)
a. Investor: owns bonds of corporation Bond: loan to the issuer
b. Debtor: issues the bonds
Fixed interest paid back by a
Learning objective 2: account company
Account for debt investments under IFRS 9
This chapter we will be looking at the investment from the investor/ bondholder.
Accounting for debt investments at AC
AC= amortized cost = valuing financial assets or liabilities that adjusts their
carrying value
To use AC you need to fulfil two conditions
1. Interest is paid on specified dates (semi-annually)
2. It is a long-term investment
Held-to-maturity bonds= investors intend to hold the bonds until date of maturity
date
(until the date previously agreed upon)
Debit: long-term investments (A):
+100.000
Credit: Cash (A): -100.000
After 6 months: first interest payment
Debit: Cash (A): +4.500
Credit: interest revenue (S): +4.500
, Debit: interest receivable (A):
+2.250
Credit: interest revenue (S): +
2.250
This is what you should have at the
Debit: cash (A): +4.500
Credit: Interest receivable (A): -
2.250
Credit: interest revenue (S): +
2.250
Accounting for debt investments at FVOCI
FVOCI= fair value through other comprehensive income
2 conditions
1. The loan is being paid back, so the interest depends on the remaining
value
2. Both paying interest and paying the loan back
Accounting for debt investments at FVPL
PVPL= fair value through profit or loss
Learning objective 3: account
Account for equity investments under IFRS 9
Accounting for equity investments at FVPL
This method is used unless firm makes an irrevocable election at initial
recognition
Debit: investment (A): + 100.000
Credit: cash (A): -100.000
Debit: cash (A): + 4.000
Credit: dividend income (S): +
4.000
earned dividend
Sony
When has risen
selling Sonyinisworth
worth 98.000
Debit: Investment in Sony (A):
Loss on investment (S): +
-
2.000
4.000
Credit: gain In investment
investment in Sony(S):
(A):+-
4.000
Debit: cash (A): +98.000
Learning objective 1: Explain
Explain why entities invest and what they invest in
Different kinds of investments
Equipment
Inventory
Investing in financial assets
Reasons to invest
Excess cash
Long-term strategic objectives
o Controlling another company
Categories of security to invest in
1. Equity securities (shares)
a. Investor: owns share of corporation Share: represents ownership
b. Investee: issues the share
Potential return
2. Debt securities (bonds)
a. Investor: owns bonds of corporation Bond: loan to the issuer
b. Debtor: issues the bonds
Fixed interest paid back by a
Learning objective 2: account company
Account for debt investments under IFRS 9
This chapter we will be looking at the investment from the investor/ bondholder.
Accounting for debt investments at AC
AC= amortized cost = valuing financial assets or liabilities that adjusts their
carrying value
To use AC you need to fulfil two conditions
1. Interest is paid on specified dates (semi-annually)
2. It is a long-term investment
Held-to-maturity bonds= investors intend to hold the bonds until date of maturity
date
(until the date previously agreed upon)
Debit: long-term investments (A):
+100.000
Credit: Cash (A): -100.000
After 6 months: first interest payment
Debit: Cash (A): +4.500
Credit: interest revenue (S): +4.500
, Debit: interest receivable (A):
+2.250
Credit: interest revenue (S): +
2.250
This is what you should have at the
Debit: cash (A): +4.500
Credit: Interest receivable (A): -
2.250
Credit: interest revenue (S): +
2.250
Accounting for debt investments at FVOCI
FVOCI= fair value through other comprehensive income
2 conditions
1. The loan is being paid back, so the interest depends on the remaining
value
2. Both paying interest and paying the loan back
Accounting for debt investments at FVPL
PVPL= fair value through profit or loss
Learning objective 3: account
Account for equity investments under IFRS 9
Accounting for equity investments at FVPL
This method is used unless firm makes an irrevocable election at initial
recognition
Debit: investment (A): + 100.000
Credit: cash (A): -100.000
Debit: cash (A): + 4.000
Credit: dividend income (S): +
4.000
earned dividend
Sony
When has risen
selling Sonyinisworth
worth 98.000
Debit: Investment in Sony (A):
Loss on investment (S): +
-
2.000
4.000
Credit: gain In investment
investment in Sony(S):
(A):+-
4.000
Debit: cash (A): +98.000
