Financial assets must be recognized on the balance sheet date if the entity has become a party to the contractual provisions of the instrument. There are two approaches to recognition - trade date accounting and settlement date accounting. Trade date accounting recognizes assets and liabilities on the trade date, while settlement date accounting uses the settlement date. The appropriate accounting also depends on how the financial asset is classified and whether it is measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss.
Valuing stocks and assesing risk ch.7 (uts)Rika Hernawati
This chapter discusses stock valuation methods, determining the required rate of return, factors that affect stock prices, the role of analysts, measures of stock risk, and applying the concepts of value at risk and beta. It covers valuation models like price-earnings and dividend discount models. It also explains the capital asset pricing model for calculating the required return and how economic, market, and firm-specific factors influence stock prices.
This document defines various financial terms from A to Z. Key terms defined include:
- P/E ratio: A ratio of a company's current stock price to its earnings per share. Commonly used to evaluate whether a stock is over or undervalued.
- PSA: A prepayment model used to derive an implied prepayment speed for new production loans.
- Portfolio: A collection of investments, both real and financial assets.
- Portfolio management: The oversight of an investment portfolio to meet an individual or institution's investment objectives.
This document discusses mergers and acquisitions (M&A) and provides an overview of key concepts in 3 sections. Section 1 discusses values that can be obtained from M&A. Section 2 covers M&A practices, including effects of takeovers, anti-takeover devices, and other concepts. Section 3 lists various valuation methods used in M&A transactions.
Valuation Challenges During Due Diligence bjones038
The document discusses several valuation challenges that can arise during due diligence for an acquisition, including how to account for acquisition-related costs, contingent consideration, leases, in-process research and development, deferred revenue, and defensive assets. It notes the earnings impact and accounting treatment of each item, as well as risks to consider. The goal is to help management, auditors and valuation specialists collaborate to properly allocate purchase price and structure the deal.
Ratios and formulas in customer financial analysisNajib Baig
The document provides an overview of various financial ratios used in analyzing customer financial statements. It discusses liquidity ratios, profitability ratios, leverage ratios, and efficiency ratios. For each type of ratio, it provides the calculation formulas and explains what each ratio measures. The ratios can be used to evaluate aspects of a company's operations, such as its ability to meet current obligations, generate profits, utilize debt, and manage assets and expenses.
This allows for a sufficient tax shield to maximize the profitability of the buyout. By utilizing such leverage, we incur a great deal from the tax shield. Further, we would pay off the debt using our excess free cash flow to pay off the debt. By the end of the 5th year, we would sell the firm andgain from any excess value found within the firm.
1) Corporate development teams must understand post-transaction accounting adjustments, like purchase price allocations, which can significantly impact reported earnings per share.
2) Estimating adjustments such as intangible asset valuations early improves deal analysis and mitigates risk of dilutive transactions.
3) Key factors that affect adjustments are expected synergies, purchase price, assets acquired, and whether the deal structure is a stock or asset transaction.
1) Corporate development teams must understand how post-transaction accounting adjustments could impact future earnings and accretion/dilution analyses. Purchase accounting under SFAS 141 requires adjusting acquired assets and liabilities to fair value.
2) Significant adjustments are often made to tangible assets such as property and inventory if fair value differs from book value. Intangible assets not previously recognized must also be identified and valued.
3) The allocation between intangible assets and goodwill can substantially affect earnings through differing amortization periods. Scenarios allocating more of the purchase price to intangible assets resulted in greater amortization expenses and EPS dilution.
Valuing stocks and assesing risk ch.7 (uts)Rika Hernawati
This chapter discusses stock valuation methods, determining the required rate of return, factors that affect stock prices, the role of analysts, measures of stock risk, and applying the concepts of value at risk and beta. It covers valuation models like price-earnings and dividend discount models. It also explains the capital asset pricing model for calculating the required return and how economic, market, and firm-specific factors influence stock prices.
This document defines various financial terms from A to Z. Key terms defined include:
- P/E ratio: A ratio of a company's current stock price to its earnings per share. Commonly used to evaluate whether a stock is over or undervalued.
- PSA: A prepayment model used to derive an implied prepayment speed for new production loans.
- Portfolio: A collection of investments, both real and financial assets.
- Portfolio management: The oversight of an investment portfolio to meet an individual or institution's investment objectives.
This document discusses mergers and acquisitions (M&A) and provides an overview of key concepts in 3 sections. Section 1 discusses values that can be obtained from M&A. Section 2 covers M&A practices, including effects of takeovers, anti-takeover devices, and other concepts. Section 3 lists various valuation methods used in M&A transactions.
Valuation Challenges During Due Diligence bjones038
The document discusses several valuation challenges that can arise during due diligence for an acquisition, including how to account for acquisition-related costs, contingent consideration, leases, in-process research and development, deferred revenue, and defensive assets. It notes the earnings impact and accounting treatment of each item, as well as risks to consider. The goal is to help management, auditors and valuation specialists collaborate to properly allocate purchase price and structure the deal.
Ratios and formulas in customer financial analysisNajib Baig
The document provides an overview of various financial ratios used in analyzing customer financial statements. It discusses liquidity ratios, profitability ratios, leverage ratios, and efficiency ratios. For each type of ratio, it provides the calculation formulas and explains what each ratio measures. The ratios can be used to evaluate aspects of a company's operations, such as its ability to meet current obligations, generate profits, utilize debt, and manage assets and expenses.
This allows for a sufficient tax shield to maximize the profitability of the buyout. By utilizing such leverage, we incur a great deal from the tax shield. Further, we would pay off the debt using our excess free cash flow to pay off the debt. By the end of the 5th year, we would sell the firm andgain from any excess value found within the firm.
1) Corporate development teams must understand post-transaction accounting adjustments, like purchase price allocations, which can significantly impact reported earnings per share.
2) Estimating adjustments such as intangible asset valuations early improves deal analysis and mitigates risk of dilutive transactions.
3) Key factors that affect adjustments are expected synergies, purchase price, assets acquired, and whether the deal structure is a stock or asset transaction.
1) Corporate development teams must understand how post-transaction accounting adjustments could impact future earnings and accretion/dilution analyses. Purchase accounting under SFAS 141 requires adjusting acquired assets and liabilities to fair value.
2) Significant adjustments are often made to tangible assets such as property and inventory if fair value differs from book value. Intangible assets not previously recognized must also be identified and valued.
3) The allocation between intangible assets and goodwill can substantially affect earnings through differing amortization periods. Scenarios allocating more of the purchase price to intangible assets resulted in greater amortization expenses and EPS dilution.
Equity financing involves raising capital by selling shares of ownership in a company rather than through debt. This document discusses various types of equity financing and shares. It covers topics such as common stock and preferred stock, as well as ways for companies to raise equity capital through initial public offerings, rights issues, and corporate or angel investors. The document also examines how stock prices are determined and the impact of dividend policy and stock dividends or stock splits. Finally, it discusses shareholder voting rights and procedures.
This document provides definitions for over 100 financial terms starting with T. Some key terms defined include:
- T-period holding-period return - The percentage return over a T-year period for an investment.
- Tactical asset allocation - An asset allocation strategy that allows active departures from the normal asset mix based on objective measures of value.
- Tail - Refers to differences in prices, amounts remaining, or probabilities under a distribution curve in various financial contexts.
- Takeover - A transfer of control of a firm from one group of shareholders to another group.
The document provides concise yet comprehensive definitions for common financial terms to help explain concepts related to investments, accounting, markets and
This document defines financial terms from A to C, including cable, calendar, calendar effect, call, call an option, call date, call money rate, call option, call premium, and call price. It provides concise definitions for each term in 1-2 sentences.
The document discusses the cost of equity capital and methods for estimating it. It covers estimating beta based on a firm's sensitivity to market returns. Determinants of beta include business risk from cyclicality and operating leverage, as well as financial risk from leverage. The weighted average cost of capital incorporates both equity and debt costs. Firms can potentially lower their cost of capital by increasing stock liquidity through measures like stock splits and disclosure.
1. Companies invest in other companies for reasons like safety, cash needs, investment returns, influence, and control.
2. Securities are classified as debt, equity, or hybrid and can be held-to-maturity, available-for-sale, or trading.
3. The accounting treatment for securities depends on their classification and includes recognizing interest revenue, dividends, and changes in fair value.
This document discusses the cost of capital and how it is calculated. It begins by defining cost of capital as the minimum rate of return a company must earn on an investment to maintain its value. It then discusses the different costs that make up the overall cost of capital, including:
- Cost of equity, which is the rate investors use to value the company's future dividend payments. It can be calculated using the dividend valuation model or capital asset pricing model.
- Cost of debt, which is the after-tax interest rate the company pays on its borrowed funds.
- Cost of preferred shares.
It explains that the weighted average cost of capital (WACC) weights each of these costs based on the
This document provides definitions for financial terms starting with the letters A through F. It includes concise explanations of terms such as factor, factor analysis, factor model, factor portfolio, factoring, fail, fair game, fair market price, fair price, fair-and-equitable test, fallout risk, FASB, FASB No. 8, FASB No. 52, FCIA, FDIC, feasible portfolio, feasible set of portfolios, feasible target payout ratios, federal agency securities, federal credit agencies, federal funds, federal funds market, federal funds rate, Federal Home Loan Banks, Federal Reserve System, and federally related institutions.
Volatility of Fair Value Accounting from a Reinsurer's Perspectivemfrings
At the October 2012 Society of Actuaries annual meeting, Michael Frings gave a presentation entitled “Volatility of Fair Value Accounting from a Reinsurer’s Perspective”. He described the sources of fair value volatility on income statement and balance sheets both in US GAAP and IFRS frameworks. He described the assumptions and interpretations which can lead to increased volatility. He outlined where volatility is viewed more or less favorably by financial analysts. He proposed solutions to the fair value volatility problem emphasizing that while there is no silver bullet, astute setup of the hedges, accounting, and reinsurance can reduce fair value accounting volatility. Michael’s presentation was well-received and he will present it again at a future SOA webcast on Fair Value Accounting Volatility planned for early 2013.
Hedge accounting seeks to eliminate accounting mismatches that arise from differences in timing of recognition and measurement of the hedged item and hedging instrument. It recognizes the offsetting effects on profit and loss of changes in fair value of the hedging instrument and hedged item. IAS 39 outlines three types of hedge relationships - fair value hedges, cash flow hedges, and hedges of a net investment in a foreign operation. Strict conditions must be met for hedge accounting to be applied, including formal documentation of the hedging relationship and ongoing assessment of hedge effectiveness.
This document provides definitions for over 50 terms related to stocks, the stock market, and financial analysis. Some key terms defined include American Depository Receipts, which allow foreign stocks to trade in the US market, arbitrage which is the practice of exploiting price differences in the same security trading on different exchanges, and cash flow which refers to a company's net income plus non-cash expenses like depreciation. Additional terms defined include preferred stock, price-earnings ratios, technical analysis, warrants, and puts and calls which are options contracts.
Leverage refers to using fixed costs to magnify returns. There are three types of leverage: operating, financial, and combined. Operating leverage is the sensitivity of earnings to sales changes. Financial leverage is the sensitivity of earnings per share to earnings changes. Combined leverage shows the responsiveness of EPS to sales changes. Calculating the degrees of each leverage type provides measures of risk. Operating leverage is measured by the percentage change in EBIT divided by the percentage change in sales. Financial leverage is measured by the percentage change in EPS divided by the percentage change in EBIT. Combined leverage is the product of operating and financial leverage.
This document provides definitions and formulas for various types of financial ratios used to analyze a company's liquidity, capital structure, coverage, turnover/activity, and profitability.
It includes liquidity ratios like current ratio, quick ratio, and cash ratio to assess short-term solvency. Capital structure ratios like debt-equity ratio and capital gearing ratio indicate financing techniques and long-term solvency. Coverage ratios assess ability to serve fixed liabilities. Turnover/activity ratios measure efficiency of asset usage. Profitability ratios evaluate overall performance based on sales, assets, equity, and investment. Illustrations demonstrate computing ratios from financial statements.
This document discusses accounting standards for contingent consideration in business acquisitions. Under ASC 805, contingent consideration must be recognized at fair value on the acquisition date as part of the purchase price. It can be classified as either a liability or equity, depending on if the number of shares is fixed or variable. If classified as a liability, it must be remeasured to fair value each reporting period, which can cause earnings volatility. The accounting treatment is counterintuitive as gains or losses are recorded even if the business performs differently than expected. Valuing contingent consideration typically uses an income approach due to its prospective nature.
This document discusses accounting for merchandising businesses. It defines key terms like cost of goods sold, gross profit, and inventory. It explains how merchandising transactions are recorded, including purchases, sales, returns, and discounts. Specific examples show recording purchases on account, cash sales, sales returns, and freight costs. The document also discusses the financial statements of a merchandising business, including the multiple-step income statement and balance sheet.
Financial engineering is the quantitative methodology used for development of solutions to financial problems. It is often used for development of new financial products, such as an existing basket of vanilla financial products, or combining features of different financial products in a hybrid financial product, in order to enhance the yield or changing the risk aspects of the new product in accordance with the views of the client. The presentation on financial engineering and structured products is a presentation made at a conference regarding the products that have the unique feature of preserving the initial investment or a portion of initial investment along with the potential of increasing the yield of the investment.
This document discusses dividend decision and policy. It defines dividends as profits distributed to shareholders from company earnings. There are several types of dividends including cash, stock, scrip, and bond dividends. Factors that influence a company's dividend policy include future growth needs, business cycles, the age and industry of the company, and shareholder preferences. Dividend theories also impact policy, such as Walter's model stating dividends influence firm value, and the MM irrelevance theory stating dividends do not impact value or shareholder wealth. Overall the document provides an overview of dividends, factors in determining policy, and influential theoretical frameworks.
The document discusses key topics in valuation analysis, including:
1) Two main questions in valuation - what a company is intrinsically worth and what someone will pay for it
2) Challenges in finding "pure comps" or comparable companies due to differences in operations and intangible factors
3) Synergies from M&A deals are often critical to the valuation as they are a key driver of what an acquirer will pay
The document discusses several key aspects of corporate fraud including:
1) The legal definition of fraud which requires a deliberate misrepresentation that causes damages.
2) Common types of accounting irregularities used to commit fraud such as aggressive accounting, earnings management, and fraudulent financial reporting.
3) The main cash flow cycles in a business - sales, expenses, payroll, inventory, and capital expenditures - and how fraud can occur in each cycle.
4) Warning signs that a corporate fraud may be taking place such as bypassing low bidders and a lack of controls over spending.
The host instrument is the USD 10 million fixed rate bond.
The embedded derivative is the option to exchange the bond for 1 million shares of Skipper Corp, as this provides exposure to the share price of Skipper Corp in addition to the fixed coupon payments on the bond.
This document provides an overview of Ind AS 38 on Intangible Assets. It discusses the objective and scope, key definitions, recognition and measurement criteria, disclosure requirements, and differences between Ind AS 38 and the previous Accounting Standard AS 26. Some of the key points covered include defining an intangible asset, the criteria for recognition of intangible assets, measurement at cost or revaluation model, amortization periods, impairment testing, and additional disclosures required under Ind AS 38.
IND AS 16 provides guidance on accounting for plant, property and equipment (PPE). Key points include:
- An asset must meet the definition of a PPE to be classified as such, which includes being held for use in production, rental or administration with a useful life of more than 12 months.
- Initial recognition of a PPE involves capitalizing all costs required to bring the asset to working condition. Special cases like barter transactions also have specific guidance.
- Subsequent expenditures are generally expensed unless increasing the life or efficiency of the asset. Major replacements are capitalized by adjusting the carrying value.
- PPE can be carried at cost or revaluation model with periodic revaluations and accounting for
Equity financing involves raising capital by selling shares of ownership in a company rather than through debt. This document discusses various types of equity financing and shares. It covers topics such as common stock and preferred stock, as well as ways for companies to raise equity capital through initial public offerings, rights issues, and corporate or angel investors. The document also examines how stock prices are determined and the impact of dividend policy and stock dividends or stock splits. Finally, it discusses shareholder voting rights and procedures.
This document provides definitions for over 100 financial terms starting with T. Some key terms defined include:
- T-period holding-period return - The percentage return over a T-year period for an investment.
- Tactical asset allocation - An asset allocation strategy that allows active departures from the normal asset mix based on objective measures of value.
- Tail - Refers to differences in prices, amounts remaining, or probabilities under a distribution curve in various financial contexts.
- Takeover - A transfer of control of a firm from one group of shareholders to another group.
The document provides concise yet comprehensive definitions for common financial terms to help explain concepts related to investments, accounting, markets and
This document defines financial terms from A to C, including cable, calendar, calendar effect, call, call an option, call date, call money rate, call option, call premium, and call price. It provides concise definitions for each term in 1-2 sentences.
The document discusses the cost of equity capital and methods for estimating it. It covers estimating beta based on a firm's sensitivity to market returns. Determinants of beta include business risk from cyclicality and operating leverage, as well as financial risk from leverage. The weighted average cost of capital incorporates both equity and debt costs. Firms can potentially lower their cost of capital by increasing stock liquidity through measures like stock splits and disclosure.
1. Companies invest in other companies for reasons like safety, cash needs, investment returns, influence, and control.
2. Securities are classified as debt, equity, or hybrid and can be held-to-maturity, available-for-sale, or trading.
3. The accounting treatment for securities depends on their classification and includes recognizing interest revenue, dividends, and changes in fair value.
This document discusses the cost of capital and how it is calculated. It begins by defining cost of capital as the minimum rate of return a company must earn on an investment to maintain its value. It then discusses the different costs that make up the overall cost of capital, including:
- Cost of equity, which is the rate investors use to value the company's future dividend payments. It can be calculated using the dividend valuation model or capital asset pricing model.
- Cost of debt, which is the after-tax interest rate the company pays on its borrowed funds.
- Cost of preferred shares.
It explains that the weighted average cost of capital (WACC) weights each of these costs based on the
This document provides definitions for financial terms starting with the letters A through F. It includes concise explanations of terms such as factor, factor analysis, factor model, factor portfolio, factoring, fail, fair game, fair market price, fair price, fair-and-equitable test, fallout risk, FASB, FASB No. 8, FASB No. 52, FCIA, FDIC, feasible portfolio, feasible set of portfolios, feasible target payout ratios, federal agency securities, federal credit agencies, federal funds, federal funds market, federal funds rate, Federal Home Loan Banks, Federal Reserve System, and federally related institutions.
Volatility of Fair Value Accounting from a Reinsurer's Perspectivemfrings
At the October 2012 Society of Actuaries annual meeting, Michael Frings gave a presentation entitled “Volatility of Fair Value Accounting from a Reinsurer’s Perspective”. He described the sources of fair value volatility on income statement and balance sheets both in US GAAP and IFRS frameworks. He described the assumptions and interpretations which can lead to increased volatility. He outlined where volatility is viewed more or less favorably by financial analysts. He proposed solutions to the fair value volatility problem emphasizing that while there is no silver bullet, astute setup of the hedges, accounting, and reinsurance can reduce fair value accounting volatility. Michael’s presentation was well-received and he will present it again at a future SOA webcast on Fair Value Accounting Volatility planned for early 2013.
Hedge accounting seeks to eliminate accounting mismatches that arise from differences in timing of recognition and measurement of the hedged item and hedging instrument. It recognizes the offsetting effects on profit and loss of changes in fair value of the hedging instrument and hedged item. IAS 39 outlines three types of hedge relationships - fair value hedges, cash flow hedges, and hedges of a net investment in a foreign operation. Strict conditions must be met for hedge accounting to be applied, including formal documentation of the hedging relationship and ongoing assessment of hedge effectiveness.
This document provides definitions for over 50 terms related to stocks, the stock market, and financial analysis. Some key terms defined include American Depository Receipts, which allow foreign stocks to trade in the US market, arbitrage which is the practice of exploiting price differences in the same security trading on different exchanges, and cash flow which refers to a company's net income plus non-cash expenses like depreciation. Additional terms defined include preferred stock, price-earnings ratios, technical analysis, warrants, and puts and calls which are options contracts.
Leverage refers to using fixed costs to magnify returns. There are three types of leverage: operating, financial, and combined. Operating leverage is the sensitivity of earnings to sales changes. Financial leverage is the sensitivity of earnings per share to earnings changes. Combined leverage shows the responsiveness of EPS to sales changes. Calculating the degrees of each leverage type provides measures of risk. Operating leverage is measured by the percentage change in EBIT divided by the percentage change in sales. Financial leverage is measured by the percentage change in EPS divided by the percentage change in EBIT. Combined leverage is the product of operating and financial leverage.
This document provides definitions and formulas for various types of financial ratios used to analyze a company's liquidity, capital structure, coverage, turnover/activity, and profitability.
It includes liquidity ratios like current ratio, quick ratio, and cash ratio to assess short-term solvency. Capital structure ratios like debt-equity ratio and capital gearing ratio indicate financing techniques and long-term solvency. Coverage ratios assess ability to serve fixed liabilities. Turnover/activity ratios measure efficiency of asset usage. Profitability ratios evaluate overall performance based on sales, assets, equity, and investment. Illustrations demonstrate computing ratios from financial statements.
This document discusses accounting standards for contingent consideration in business acquisitions. Under ASC 805, contingent consideration must be recognized at fair value on the acquisition date as part of the purchase price. It can be classified as either a liability or equity, depending on if the number of shares is fixed or variable. If classified as a liability, it must be remeasured to fair value each reporting period, which can cause earnings volatility. The accounting treatment is counterintuitive as gains or losses are recorded even if the business performs differently than expected. Valuing contingent consideration typically uses an income approach due to its prospective nature.
This document discusses accounting for merchandising businesses. It defines key terms like cost of goods sold, gross profit, and inventory. It explains how merchandising transactions are recorded, including purchases, sales, returns, and discounts. Specific examples show recording purchases on account, cash sales, sales returns, and freight costs. The document also discusses the financial statements of a merchandising business, including the multiple-step income statement and balance sheet.
Financial engineering is the quantitative methodology used for development of solutions to financial problems. It is often used for development of new financial products, such as an existing basket of vanilla financial products, or combining features of different financial products in a hybrid financial product, in order to enhance the yield or changing the risk aspects of the new product in accordance with the views of the client. The presentation on financial engineering and structured products is a presentation made at a conference regarding the products that have the unique feature of preserving the initial investment or a portion of initial investment along with the potential of increasing the yield of the investment.
This document discusses dividend decision and policy. It defines dividends as profits distributed to shareholders from company earnings. There are several types of dividends including cash, stock, scrip, and bond dividends. Factors that influence a company's dividend policy include future growth needs, business cycles, the age and industry of the company, and shareholder preferences. Dividend theories also impact policy, such as Walter's model stating dividends influence firm value, and the MM irrelevance theory stating dividends do not impact value or shareholder wealth. Overall the document provides an overview of dividends, factors in determining policy, and influential theoretical frameworks.
The document discusses key topics in valuation analysis, including:
1) Two main questions in valuation - what a company is intrinsically worth and what someone will pay for it
2) Challenges in finding "pure comps" or comparable companies due to differences in operations and intangible factors
3) Synergies from M&A deals are often critical to the valuation as they are a key driver of what an acquirer will pay
The document discusses several key aspects of corporate fraud including:
1) The legal definition of fraud which requires a deliberate misrepresentation that causes damages.
2) Common types of accounting irregularities used to commit fraud such as aggressive accounting, earnings management, and fraudulent financial reporting.
3) The main cash flow cycles in a business - sales, expenses, payroll, inventory, and capital expenditures - and how fraud can occur in each cycle.
4) Warning signs that a corporate fraud may be taking place such as bypassing low bidders and a lack of controls over spending.
The host instrument is the USD 10 million fixed rate bond.
The embedded derivative is the option to exchange the bond for 1 million shares of Skipper Corp, as this provides exposure to the share price of Skipper Corp in addition to the fixed coupon payments on the bond.
This document provides an overview of Ind AS 38 on Intangible Assets. It discusses the objective and scope, key definitions, recognition and measurement criteria, disclosure requirements, and differences between Ind AS 38 and the previous Accounting Standard AS 26. Some of the key points covered include defining an intangible asset, the criteria for recognition of intangible assets, measurement at cost or revaluation model, amortization periods, impairment testing, and additional disclosures required under Ind AS 38.
IND AS 16 provides guidance on accounting for plant, property and equipment (PPE). Key points include:
- An asset must meet the definition of a PPE to be classified as such, which includes being held for use in production, rental or administration with a useful life of more than 12 months.
- Initial recognition of a PPE involves capitalizing all costs required to bring the asset to working condition. Special cases like barter transactions also have specific guidance.
- Subsequent expenditures are generally expensed unless increasing the life or efficiency of the asset. Major replacements are capitalized by adjusting the carrying value.
- PPE can be carried at cost or revaluation model with periodic revaluations and accounting for
The document discusses key concepts relating to financial instruments including definitions, classification, measurement and hedge accounting. It defines financial instruments as contracts that give rise to financial assets of one entity and financial liabilities or equity of another. It also discusses the classification of financial assets and liabilities under IAS 39 and IFRS 9. The document provides examples of different types of financial instruments like debt, equity and derivatives. It explains the accounting for compound financial instruments. Finally, the document discusses hedge accounting and provides examples of fair value and cash flow hedges.
This document defines various financial terms:
- Annual General Meeting (AGM) is a yearly meeting of a registered company where the prior year's performance and financial statements are presented. Any shareholder can participate.
- Asset turnover ratio measures a business's operational efficiency by dividing net assets by total sales.
- Liquid assets are those that can readily be converted into cash, such as cash balances. The acid test ratio measures business liquidity by dividing highly liquid assets by current liabilities.
- Amortization is an accounting technique where intangible assets are written off over time, such as preliminary expenses.
Accounting Standard 26 outlines standards for intangible assets. It defines intangible assets as non-physical assets including scientific/technical knowledge, software, patents, trademarks and more. It provides guidance on primary and secondary recognition of intangible assets acquired through purchase, amalgamation, government grants, or asset exchanges. It also addresses treatment of research and development expenditures. The standard specifies acceptable methods for amortizing intangible assets over their useful lives.
The document summarizes some of the key differences between US GAAP, Indian GAAP, and International Financial Reporting Standards (IFRS) across various accounting topics:
- Revenue recognition, balance sheet presentation, corrections of errors, and business combinations differ between the standards. US GAAP and IFRS are more similar to each other than to Indian GAAP in many of these areas.
- IFRS and US GAAP both require comprehensive income reporting and fair value measurement of derivatives and hedges, whereas Indian GAAP has no such requirements.
- Requirements around cash flow statements, property/equipment, leases, share issue expenses, and prior period adjustments also vary between the three sets of standards
Financial instruments are contracts that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. There are several types of financial instruments including cash, receivables, payables, loans, bonds, derivatives, and equity instruments. Financial instruments are classified and accounted for differently depending on whether they are assets, liabilities, or equity. Financial assets are classified as financial assets at fair value through profit or loss, held-to-maturity, loans and receivables, or available-for-sale. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities. The classification of financial instruments affects how they are measured and presented in financial statements
This document provides definitions and explanations of key accounting concepts and terms. It discusses accounting as a system to record and communicate financial information. Key topics covered include the accounting equation, double-entry bookkeeping system, types of accounts, accounting cycle, journals, ledgers, debits and credits, balancing accounts, and more.
Revaluation of fixed assets involves adjusting the recorded value of a company's capital goods like machines, buildings, and patents to reflect their true market value. This is distinct from regular depreciation which ties asset value decline to age. Reasons for revaluation include showing accurate rates of return, maintaining adequate replacement funds, and negotiating fair sale prices. Common revaluation methods include indexation against cost inflation, appraising current market prices, and hiring experts. Any increase in value is recorded in a revaluation reserve rather than profits to avoid overstating earnings.
The document discusses the differences between revenue and capital expenditures and receipts. Revenue expenditures relate to operations or revenue earned in an accounting period, while capital expenditures generate benefits over multiple periods. Revenue expenses are transferred to the profit and loss account in the year spent, while capital expenses are transferred over the years benefited. Determining factors include nature, frequency, purpose, and materiality of the expense. Deferred revenue expenditures provide benefits over multiple periods but cannot be precisely estimated. Revenue receipts come from normal business activities, while capital receipts are non-recurring.
This document provides definitions for over 100 financial terms. Some key terms defined include:
- Accounts payable and accounts receivable, which refer to amounts owed to and due from customers/vendors.
- Assets, which are anything with future economic value including tangible and intangible assets.
- Liabilities, which are obligations used to fund business operations.
- Income statement, balance sheet, and cash flow statement, which are the three main financial statements.
This document provides an introduction to key accounting concepts and terms. It defines accounting as the process of identifying, recording, classifying, summarizing, and communicating financial information. The key concepts covered include the accounting equation, double-entry bookkeeping system, accounting cycle, journals, ledgers, debits and credits, and types of accounts. Examples are provided to illustrate basic accounting transactions and how they are recorded using debits and credits according to the rules of double-entry bookkeeping.
This document provides definitions and explanations of key accounting concepts and terms. It discusses the purpose and principles of accounting, including maintaining systematic records of business transactions, protecting business assets, and communicating financial information. The document defines important accounting elements like assets, liabilities, equity/capital, revenue, expenses, profits and losses. It also explains the difference between cash-basis and accrual-basis accounting. Overall, the document provides a comprehensive introduction and overview of fundamental accounting concepts.
This document provides an introduction to key accounting concepts and terms. It defines accounting as the process of identifying, recording, classifying, summarizing, and communicating financial information. The key concepts covered include the accounting equation, double-entry bookkeeping system, accounting cycle, journals, ledgers, debits and credits, and types of accounts. Business transactions that affect the financial position of the firm are recorded using double-entry bookkeeping. The accounting cycle involves recording transactions, classifying accounts, posting to ledgers, and preparing financial statements to summarize the financial results.
This document provides definitions and explanations of key accounting concepts and terms. It discusses the purpose and principles of accounting, including maintaining systematic records of business transactions, protecting business assets, and communicating financial information. The document defines important accounting elements like assets, liabilities, equity/capital, revenue, expenses, profits and losses. It also explains the difference between cash-basis and accrual-basis accounting. Overall, the document provides a comprehensive introduction and overview of fundamental accounting concepts.
IAS 24 aims to ensure financial statements disclose related party transactions that may influence the financial position or performance of an entity. A related party is a person or entity that can control, jointly control or significantly influence the entity. Disclosures include the nature and amount of transactions between the entity and its related parties, as well as information about key management personnel compensation. Certain government-related entities may be exempt from full related party disclosure requirements.
IAS 23 prescribes the accounting treatment for borrowing costs and provides guidelines for capitalizing borrowing costs for qualifying assets. Borrowing costs eligible for capitalization include interest expense, finance charges, and certain exchange differences from foreign currency borrowings. Capitalization begins when expenditures on the asset are incurred and activities to prepare it for use are in progress. Capitalization ceases when substantially all activities to prepare the asset are complete. The amount capitalized is either the actual borrowing costs of specific loans obtained for the asset or a capitalization rate applied to qualifying asset expenditures.
IAS 21 deals with accounting for foreign currency transactions and foreign operations in financial statements. It covers translating foreign currency transactions into the functional currency, translating the financial statements of foreign operations for consolidation, and translating financial statements into the presentation currency. The standard defines key terms like foreign currency, functional currency, foreign operation, and presentation currency. It specifies how to account for foreign currency transactions and translate financial statements initially and in subsequent periods.
This document summarizes the key principles of IAS 18 regarding the recognition of revenue. The standard provides guidance on when revenue from the sale of goods or services should be recognized, and specifies that revenue is recognized when it is probable future economic benefits will flow to the entity and those benefits can be reliably measured. The document outlines the criteria for recognizing revenue from various types of transactions and arrangements, including sales of goods, rendering of services, financing transactions, and customer loyalty programs.
IAS 17 provides guidance on classifying and accounting for leases. It distinguishes between finance and operating leases and sets out the required accounting treatment for each type from the perspectives of lessees and lessors. Key aspects covered include criteria for lease classification, accounting for lease payments and incentives, sale and leaseback transactions, and disclosure requirements.
IAS 16 provides the accounting requirements for property, plant, and equipment (PP&E). It requires PP&E to be recognized as an asset if it meets the definition of an asset and the recognition criteria. The standard addresses the initial measurement and subsequent accounting for PP&E, including depreciation, impairment losses, and derecognition. It also provides guidance on the choice between the cost model or revaluation model for subsequent measurement.
IAS 12 provides guidance on accounting for income taxes. It aims to ensure that entities account for deferred tax liabilities and assets for temporary differences between the carrying amount of assets and liabilities and their tax bases. Key aspects covered include defining temporary differences, recognizing deferred tax assets and liabilities, offsetting current tax assets and liabilities, and presenting current and deferred taxes. Entities must also disclose information related to income taxes in their financial statements.
IAS 14 establishes principles for segment reporting to provide information about different types of products/services and geographical areas of an entity. The standard aims to help users understand an entity's past performance, assess risks and returns, and make informed judgments. IAS 14 requires publicly traded entities and those issuing public securities to disclose segment information. Reportable segments are those generating over 10% of certain financial metrics or 75% of total revenue. Segment reporting involves allocating revenue, expenses, assets, and liabilities to operating segments.
IAS 11 provides guidance on accounting for construction contracts. It defines construction contracts and outlines how to determine contract revenue and costs. Contract revenue and costs are recognized as the work progresses based on the stage of completion, provided the outcome can be reliably estimated. The standard also provides guidance on how to determine the stage of completion using different methods like cost-to-cost or surveys of work performed. Expected losses on contracts should be recognized immediately.
IAS 10 provides guidance on accounting for events that occur after the reporting period but before the financial statements are authorized for issue. It distinguishes between adjusting events, which require changes to amounts recognized in the financial statements, and non-adjusting events, which require disclosure in the notes but do not result in changes to amounts recognized. Key definitions include adjusting events arising from conditions existing at the end of the reporting period and non-adjusting events arising from conditions that did not exist until after the reporting period. Declared dividends are considered material non-adjusting events requiring disclosure in the notes.
IAS 8 provides guidance on selecting accounting policies, accounting for changes in accounting policies, accounting estimates, and accounting for errors. It requires accounting policies to be selected based on relevance and reliability. Changes in accounting policies are accounted for retrospectively unless transitional provisions exist. Changes in estimates are accounted for prospectively. Errors are corrected retrospectively through restatement unless impracticable, in which case corrections affect the current period.
IAS 7 requires entities to prepare a statement of cash flows that classifies cash flows during the period into operating, investing, and financing activities. It aims to provide information about historical changes in cash and cash equivalents of an entity. Cash comprises cash on hand and demand deposits, while cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. The statement of cash flows excludes cash flows between items that constitute cash and cash equivalents. It can be prepared using either the direct or indirect method.
The document discusses the key components and purpose of a statement of cash flows. It explains that a statement of cash flows classifies cash flows into operating, investing, and financing activities. It also defines cash and cash equivalents and discusses what each section of the statement of cash flows indicates about the entity's cash generation, expenditures, and changes in capital structure.
IAS 2 provides guidance on accounting for inventories. Inventories include raw materials, work-in-progress, and finished goods held for sale in the ordinary course of business. Inventory is measured at the lower of cost or net realizable value, with cost determined using methods such as FIFO or weighted average. Abnormal amounts of wasted materials are excluded from inventory. Service providers classify certain labor and overhead costs as inventory until the related revenue is recognized.
IAS 1 establishes the requirements for presenting general purpose financial statements. It requires financial statements to include a statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, notes comprising significant accounting policies and other explanatory information. IAS 1 aims to ensure comparability between financial statements of different periods for a reporting entity and financial statements of different entities. It prescribes eight overall considerations for preparing financial statements including fair presentation, going concern, accrual basis of accounting, consistency of presentation, materiality and aggregation, offsetting, frequency of reporting, and comparative information.
The document discusses the Libor rate manipulation scandal that occurred from 2005-2009. It describes how Barclays and other banks artificially inflated or deflated their Libor submissions to profit from trades or appear more creditworthy. This manipulation impacted global financial markets and cost governments billions. The scandal was not properly addressed by regulators despite early awareness of inaccurate submissions. Barclays was ultimately fined over $500 million for its role in the scandal in 2012.
Raj saw rag-pickers searching through garbage for valuable items and was reminded of "bottom fishing" in investing. Bottom fishing refers to identifying undervalued stocks of healthy companies when negative macroeconomic conditions or news has driven down the entire stock market to bottom levels. Though risks are high in poor economies, bottom fishing allows astute investors to find stocks trading below their intrinsic value that can provide high returns when the market eventually recovers.
The document summarizes allegations made by Arvind Kejriwal and Prashant Bhushan of India Against Corruption against Robert Vadra, son-in-law of Congress president Sonia Gandhi. They alleged that Vadra amassed over Rs. 300 crore worth of properties through corrupt land deals with real estate firm DLF, which sold him prime properties at low prices and provided interest-free loans. According to the IAC, Vadra's personal wealth grew from Rs. 50 lakh to over Rs. 300 crore in just three years due to these deals. The document provides details on specific properties purchased by Vadra's companies.
Bartering has been practiced for necessities since before currency. It involves trading goods or services directly instead of using money. While currency makes exchanges simpler, bartering still occurs, such as prisoners trading cigarettes or children swapping food. When bartering, it is best to consider an item's value relative to what is being received in exchange. Basic safety and quality precautions should be followed to avoid problems.
The document discusses the concept of hedging using an example story and an example of currency risk hedging. In the story, a smart girl named Chameli agrees to consider marrying Vijay in a year if he signs a contract where she pays him money. This allows Chameli to ensure she can still choose someone else while paying Vijay money to cover her risks. Similarly, currency hedging allows a company to pay a fee to cover the risk of currency fluctuations increasing costs, ensuring the exchange rate will not negatively impact them.
BONKMILLON Unleashes Its Bonkers Potential on Solana.pdfcoingabbar
Introducing BONKMILLON - The Most Bonkers Meme Coin Yet
Let's be real for a second – the world of meme coins can feel like a bit of a circus at times. Every other day, there's a new token promising to take you "to the moon" or offering some groundbreaking utility that'll change the game forever. But how many of them actually deliver on that hype?
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
5 Tips for Creating Standard Financial ReportsEasyReports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby...Donc Test
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting, 8th Canadian Edition by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Ebook Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Pdf Solution Manual For Financial Accounting 8th Canadian Edition Pdf Download Stuvia Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Financial Accounting 8th Canadian Edition Ebook Download Stuvia Financial Accounting 8th Canadian Edition Pdf Financial Accounting 8th Canadian Edition Pdf Download Stuvia
Vicinity Jobs’ data includes more than three million 2023 OJPs and thousands of skills. Most skills appear in less than 0.02% of job postings, so most postings rely on a small subset of commonly used terms, like teamwork.
Laura Adkins-Hackett, Economist, LMIC, and Sukriti Trehan, Data Scientist, LMIC, presented their research exploring trends in the skills listed in OJPs to develop a deeper understanding of in-demand skills. This research project uses pointwise mutual information and other methods to extract more information about common skills from the relationships between skills, occupations and regions.
2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
Economic Risk Factor Update: June 2024 [SlideShare]Commonwealth
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Duba...mayaclinic18
Whatsapp (+971581248768) Buy Abortion Pills In Dubai/ Qatar/Kuwait/Doha/Abu Dhabi/Alain/RAK City/Satwa/Al Ain/Abortion Pills For Sale In Qatar, Doha. Abu az Zuluf. Abu Thaylah. Ad Dawhah al Jadidah. Al Arish, Al Bida ash Sharqiyah, Al Ghanim, Al Ghuwariyah, Qatari, Abu Dhabi, Dubai.. WHATSAPP +971)581248768 Abortion Pills / Cytotec Tablets Available in Dubai, Sharjah, Abudhabi, Ajman, Alain, Fujeira, Ras Al Khaima, Umm Al Quwain., UAE, buy cytotec in Dubai– Where I can buy abortion pills in Dubai,+971582071918where I can buy abortion pills in Abudhabi +971)581248768 , where I can buy abortion pills in Sharjah,+97158207191 8where I can buy abortion pills in Ajman, +971)581248768 where I can buy abortion pills in Umm al Quwain +971)581248768 , where I can buy abortion pills in Fujairah +971)581248768 , where I can buy abortion pills in Ras al Khaimah +971)581248768 , where I can buy abortion pills in Alain+971)581248768 , where I can buy abortion pills in UAE +971)581248768 we are providing cytotec 200mg abortion pill in dubai, uae.Medication abortion offers an alternative to Surgical Abortion for women in the early weeks of pregnancy. Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman Fujairah Ras Al Khaimah%^^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Dubai Abu Dhabi Sharjah Deira Ajman
^%$Zone1:+971)581248768’][* Legit & Safe #Abortion #Pills #For #Sale In #Duba...
As 30 part ii
1.
2. Accounting for financial asset – Recognition
When to recognize?
On balance sheet date and
When the entity becomes party to the contractual provisions of the instrument
For example: an entity becomes party to contractual provisions when it commits to
purchase securities or to write derivative option.
Planned but not committed future transactions, no matter how likely they may be, are not
financial assets or liabilities.
For example: an entity’s estimated but uncommitted sales do not qualify as financial
assets or liabilities.
Timing of recognition of financial asset
It depends on whether the accounting is done by
•Trade date
•Settlement date.
3. Trade date accounting:
Financial asset purchased is recognized on the trade date along with simultaneous
recognition of related liability to pay for it.
Financial asset sold is derecognized on trade date along with recognition of gain/loss
on sale of that asset and related receivables.
If the financial asset is interest bearing instrument like debt or bond, interest does not
accrue on and from trade date.
Settlement date accounting:
Financial asset purchased is recognized on settlement date along with simultaneous
recognition of liability to pay for it
Financial asset sold is derecognized on settlement date along with recognition of
gain/loss on sale of that asset and related receivables.
4. An important issue is the accounting treatment of fair value change between the trade
date and settlement date.
Example: A ltd purchases a financial asset as on 29th March 2012 for Rs 100 lakh. The
fair value of the asset on 31st March 2012 (year end) and 2nd April 2012 (settlement
date) are Rs 105 lakh and Rs 103 lakh respectively. Accounting treatment of the
transaction would depend upon classification of the financial asset.
5. Trade date accounting:
Date HTM investment AVS asset re- Assets at FVTPL re-
carried at amortized measured at fair measured at fair
cost value with changes in value with changes in
equity P&L
29th March 2012
Financial Asset Dr 100 100 100
to Financial liability 100 100 100
31st March 2012
Financial Asset Dr 5
to P&L A/c 5
Financial Asset Dr 5
To fair value reserve 5
A/c
2nd April 2012
P&L A/c Dr 2
To financial asset 2
Fair value reserve Dr 2
To financial asset 2
Financial liability Dr 100 100 100
To cash 100 100 100
6. Settlement date accounting:
Date HTM investment AVS asset re- Assets at FVTPL re-
carried at amortized measured at fair measured at fair
cost value with changes in value with changes in
equity P&L
29th March 2012 No entry on trade No entry on trade No entry on trade
date date date
31st March 2012
Receivables Dr 5
to P&L A/c 5
Receivables Dr 5
To fair value reserve 5
A/c
2nd April 2012
Financial Asset Dr 100
To Financial 100
liability/cash
7. Financial Asset Dr 103
Fair value reserve A/c Dr 2
To financial liability/cash 100
To Receivable 5
Financial Asset Dr 103
Fair value reserve A/c Dr 2
To financial liability/cash 100
To Receivable 5
8. Initial and subsequent recognition and measurement of financial assets:
A financial asset or financial liability at FVTPL should be measured at fair value on the
date of acquisition or issue.
Short-term receivables and payable with no stated interest rate should be measured at
invoice amount if the effect of discounting is immaterial.
Other financial asset or financial liability should be measured at fair value plus/minus
transaction costs that are directly attributable to the acquisition or issue of financial asset
or liability.
Fair value:
It is the amount at which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction.
Fair value hierarchy can be followed as under:
Active market- quoted price
No active market- valuation techniques- DCF, option pricing model
No Active market- equity investment less impairment loss
Fair value concept presumes that the entity is a going concern. Therefore fair value is
not an amount that an entity would receive or pay in a forced transaction, involuntary
liquidation or distress sale.
9. Transaction cost:
Transaction costs are the incremental costs that are directly attributable to the
acquisition, issue or disposal of a financial asset or financial liability.
The various transaction costs that an entity incurs in issuing financial instrument might
include:
Registration and other regulatory fees
Printing costs
Stamp duty
Transaction cost of an equity transaction which are directly attributable to it and are
incremental will be deducted from equity.
10.
11. Category of financial Measurement at Measurement at Impairment test (if
assets initial recognition subsequent reporting objective evidence)
date
FVTPL At fair value, on At fair value No
All stand-alone acquisition date, Change in fair value
derivatives come here which is acquisition between two click here for example
price. reporting dates is
Directly attributable charged/credited to
transaction cost is profit and loss A/c
charged to profit and directly
loss A/c separately
Available for sale At fair value, on At fair value Yes
acquisition date, Change in fair value
which is acquisition between two
price plus transaction reporting dates is Click here for example
costs that are directly charged/credited to a
attributable to separate component
acquisition or issue of of equity, say,
financial asset investment valuation
reserve
12. Category of financial Measurement at Measurement at Impairment test (if
assets initial recognition subsequent reporting objective evidence)
date
Held to maturity At fair value, on At amortized cost Yes
acquisition date, applying effective
which is acquisition interest rate.
price plus transaction
costs that are directly Click here for example
attributable to
acquisition or issue of
financial asset
Loans and receivable Short term receivable At amortized cost Yes
with no stated interest applying effective
rate should be measured interest rate.
at original invoice
amount if the effect of
discounting is Click here for example
immaterial. Other items
at fair value, on
acquisition date, which is
acquisition price plus
transaction costs that are
directly attributable to
acquisition or issue of
financial asset
13. Category of financial Measurement at Measurement at Impairment test (if
assets initial recognition subsequent reporting objective evidence)
date
Financial assets, fair At cost At cost Yes
value of which can not
be reliably measured Click here to go to
next slide
14. Example: Held for trading securities (FVTPL)
A ltd began operations on January 1, 2012. during the year A ltd purchased
various marketable equity securities. The cost and fair value of these securities
at the end of 2012 were as follows:
Face value cost Market Unrealised
loss gain
P ltd Rs. 10 2000 2500 500
Q ltd Rs. 10 3000 2600 400
R ltd Rs. 10 1000 1200 200
S ltd Rs. 10 1500 1350 150
7500 7650 550 700
15. Solution:
Adjusting entry
Valuation Allowance Dr 150 (7650-7500)
To Profit and Loss A/c 150
Debit balance in Valuation Allowance A/c indicates fair value is larger than cost and
credit balance indicates fair value is less than cost.
Dr. (Cr.)
Trading securities A/c (cost) 7500
Valuation Allowance 150
Trading securities at fair value 7650
A ltd’s securities would be reported on its December 31, 2012 balance sheet in the
Current asset section at their fair value of Rs 7650.
Click here to go back
16. Example: Available for sale
Assume same information as given in previous example except that the securities
qualify as available for sale.
Solution:
Adjusting entry
Valuation Allowance Dr 150 (7650-7500)
To Investment valuation reserve A/c 150
Investment valuation reserve account is included in the stockholder’s equity section
of the balance sheet.
A ltd’s available for sale securities would be reported on it’s December 31, 2012
balance sheet at their fair value of Rs 7650. Each security would be evaluated to
determine whether it should be classified in current asset or in non-current assets.
Those that are expected to be sold within the next year should be included in
current assets. The others should be included in non-current assets.
Click here to go back
17. Example: Held to Maturity
On January 1, year 1, A ltd purchased Rs 100000 face value , 3 year, 8% bonds of B ltd
for Rs 94924 which provides an effective interest rate of 10%. The bonds pay interest
semi-annually on June 30 and December 31.
Solution:
Amortized schedule -effective interest method
date cash interest effective interest Discount Carrying value of bonds
(4% semi annually) (5% semi annually) Amortization or amortized cost
01/01 Yr 1 94924
30/06 Yr 1 4000 4746 746 95670
31/12 Yr 1 4000 4784 784 96454
30/06 Yr2 4000 4823 823 97276
31/12 Yr 2 4000 4864 864 98140
30/06 Yr 3 4000 4907 907 99047
31/12 Yr 3 4000 4952 952 100000
Cash interest is to be calculated on face value and effective interest is to be calculated
on previous amortized cost.
18. Entries for the first year and maturity date:
01/01/yr 1
Investment in bonds Dr 94924
To Cash 94924
(initial recording at fair value)
30/06/Yr 1
Cash Dr 4000
Investment in bonds Dr 746
To Interest income 4746
31/12/Yr 1
Cash Dr 4000 Click here to go back
Investment in bonds Dr 784
To Interest income 4784
31/12/Yr 3
Cash Dr 4000
Investment in bonds Dr 952
To Interest income 4952
Cash Dr 100000
To Investment in binds 100000
19. Example: Loans and receivable
A ltd grants Rs 10 lakhs loan to its employees on January 1, 2012 at a concessional
interest rate of 4% p.a. Loan is to be repaid in five equal annual installments along with
interest. Market rate of interest for such loan is 10% p.a. At what value loan should be
recognized initially and also calculate the amortized cost for all the subsequent five
years.
Solution:
(a) Calculation of initial recognition amount of loan that will be discounted present value
of future cash flows from re-payment of the loan
Year end Cash in flows Total Discount factor Discounted
Principal Interest At 10% value
2012 200000 40000 240000 0.9090 218160
2013 200000 32000 232000 0.8263 191702
2014 200000 24000 224000 0.7512 168269
2015 200000 16000 216000 0.6829 147506
2016 200000 8000 208000 0.6208 129126
Present value or Fair value 854763
20. Entries
1/1/2012
Staff loan A/c Dr 1000000
To Bank 1000000
Staff cost A/c Dr 145267 (1000000-854763)
To staff loan 145267
(loan will be initially recognized at its fair value i.e. Rs 854763 and balance amount will
be debited to staff cost)
(b) Calculation of amortized cost at the end of each year
Year Balance Interest to be Re-payment Amortized cost
recognized (10%) (including interets)
2012 854763 85476 240000 700239
2013 700239 70024 232000 538263
2014 538263 53826 224000 368090
2015 368090 36809 216000 188899
2016 188899 18890 208000 NIL
21. Entry for 2012
Staff loan A/c Dr 85476
To Interest on staff loan 85476
Bank A/c Dr 240000
To staff loan 240000
Interest on staff loan Dr 85476
To Profit & Loss A/c 85476
Click here to go back
22. IF YOU HAVE ANY SUGGESTION, OPINION OR FEEDBACK
PLEASE FEEL FREE TO WRITE US AT
roshankumar.2007@rediffmail.com