Financial Accounting: A Managerial Perspective

Fourth Edition
Prepared by
R. Narayanaswamy Indian Institute of Management Bangalore

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Chapter 8 Investments

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Investments in Perspective

What is an investment? Why do firms hold investments? Types of investments Accounting for investments

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Financial Instruments and Financial Assets

What is a financial instrument? What is a financial asset? Contractual claim

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Equity and Debt Investments

Financial investments Financial assets at fair value through profit and loss account Held-to-maturity investments Loans and receivables Available-for-sale financial assets

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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 Fair value accounting Initial measurement Subsequent measurement Recognition of gains and losses Financial assets carried at cost
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Held-to-maturity Investments

What are held-to-maturity investments? Exclusions Initial measurement Amortized cost Effective interest method
Internal rate of return

Tainting provisions
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Loans and Receivables

What are loans and receivables? Exclusions Initial measurement Subsequent measurement Amortized cost

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Available-for-sale Financial Assets

What are available-for-sale financial assets? Initial measurement Subsequent measurement Other comprehensive income

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Impairment of Financial Assets

Categories of financial assets to be reviewed for impairment Objective evidence of impairment Measuring impairment
Financial assets carried at amortized cost Financial assets carried at cost Available-for-sale financial assets

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Equity Investments for Business Purposes

Reasons for equity investments for business purposes Operating investments vs. financial investments Accounting considerations Subsidiaries Joint ventures Associates
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Subsidiaries

Subsidiary Parent Group Control

Voting power Other means

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Consolidated Financial Statements

Why do we need consolidated financial statements? Consolidation Steps in consolidation Non-controlling interests (or minority interests) Consolidation requirements Exemption from consolidation
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Business Combination

What is a business combination? Acquirer Acquiree Acquisition Goodwill Acquisition method (or purchase method) Measuring non-controlling interests
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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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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 Jointly controlled operations Jointly controlled assets Jointly controlled entities Proportionate consolidation Proportionate consolidation requirements Exemption from proportionate consolidation
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Associates

What is an associate? Significant influence Equity method Fair value adjustment Goodwill Exemption from the equity method

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Investments in Separate Financial Statements

Separate financial statements Investment Dividend income

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Investment Property

What is investment property? Fair value model Cost model

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End of Chapter 8 Investments

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