Professional Documents
Culture Documents
BLUE NOTES
11 S
L
Investment in Equity Securities means the acquisition of equity securities for the purpose of accruing income through
dividends and increase in market value, or controlling another entity.
Note: The share is evidenced by an instrument called share certificate.
Shares Received in Lieu of Cash Dividends Cash Received in Lieu of Shares Dividends
Measurement of Income (in order of priority) Measurement of Income (as if approach)
1. fair value of the shares received the stock dividends are assumed to be received
2. cash dividends that would have been and subsequently sold at the cash received
received a gain or loss may be recognized
Share split
Only memorandum entry is made to record the receipt of new shares by virtue of share split
Theory of Accounts Practical Accounting 1
40 USL Blue Notes Chapter 11 – Investment in Equity Securities
Share split does not affect does not affect the total cost of investment. But there is a decrease or an increase in
the cost per share because the total cost now will apply to a larger or smaller number of shares
Special assessments are additional capital contribution of the shareholders. On the part of the shareholders, special
assessments are recorded as additional cost of the investment and on the part of the entity as a premium.
Stock right or preemptive right is a legal right granted to shareholders to subscribe for new shares issued by a
corporation at a specified price during a definite period.
consideration received and the carrying amount of the financial asset shall be recognized in profit or loss.
When equity securities are of the same class acquired on different dates at different costs, the entity
shall determine the cost of the securities sold using either the FIFO or Average Cost Approach.
Illustrative Problems