Comparision of Accounting Methods for Intercorporate Investments

Assumption Quantity of Shares Purchase/sale

Year Purchased (sold) Price/Share

2011 100 $80

2012 -30 60
2013 40 70
Note: All sales and purchases assumed to occur on January 1
Price may vary from price on previous day (December 31)

2011 2012
Investee earnings per share $7 $8
Investee dividend per share 2 2
e Investments

2013
$7
2
Year end Holdings Valued at Cost and Market
Market
Year No.of Shares Cost/share Total Cost Price/share

2011 100 80 8,000.00 70

2012 70 80 5,600.00 80
2013 70 80 5,600.00 90
40 70 2,800.00 90
8,400.00

Note: Market price per share

is assumed.
 Market Value

7,000.00
5,600.00
6,300.00
3,600.00
9,900.00

e: Market price per share

ssumed.
 Accounting Methods Under SFAS -115
balance sheet carrying amount
Classification Carried at 2011 2012 2013

1 HTM Amortized cost 8000 5600 8400

2 AFS market value 7000 5600 9900

3 TS market value 7000 5600 9900

4 Equity method cost plus equity in 8500 6370 9720

reinvested earning
Note: Under Equity method = cost+reinvested earnings(i.e. EPS-DPS)
SFAS -115
 TOTAL INVESTMENT INCOME Under SFAS 115
Classification Measurement 2011 2012 2013

1 HTM Dividend + realized G/L 200 -460 220

2 AFS Dividend + realized G/L 200 -460 220

3 TS Dividend + all G/L -800 540 1720

4 Equity Method Share of investee earnings + realized G/L 700 -190 770

OCI UNREALIZED HOLDING GAIN/LOSS -1000 700 1500

COMPREHENSIVE INCOME
 Components of investment income

Sl.No. particulars
1 Dividend Income:
All method except equity method
Equity Method
2 Equity in earnings of investee
Equity Method Only
(EPS* Number of Shares held)
3 Recognized gains and losses
HTM
TS
AFS
Equity Method

Note 400 = for calculation the carrying value is 70

1500= for calculation carrying value is the previous market price.
750= sales proceeds must be compared with carrying value at date of sale.
 Explanation 2011 2012 2013

Investee dividend per share 200 140 220

Not Relevant

Investee Earnings per share 700 560 770

Realized only 0 -600 0

Realized and unrealized -1000 400 1500
Realized only 0 -600 0
Realized only 0 -750 0

90 is the current market price

alue at date of sale.
Verify It
20X1 20X2 20X3
HTM 200 -460 220
TS -800 540 1720
AFS 200 -460 220
Equity Method 700 -190 770
 Condensed Income statement
2011 2012
1 Sales and operating Revenues 387.50 506.40
2 Investment Income 5.80 11.40
3 Total Revenues 393.50 517.80
4 Operating Costs (-) 323.70 390.40
5 Pretax Income 69.60 127.40
6 Year-to-Year Change 57.80
7 Percentage Change (%) 83.00
Investment Income as % of Total Income 8.33% 8.95%

Disaggregation of Operating and Investment Results

2011 2012
Opearating Income (1-4) 63.80 116.00
Year to Year Change 52.20
Percentage Change % 81.82%

Investment Income 5.80 11.40

Year to Year Change 5.60
Percentage Change % 96.55%
 2013
592.00
44.60
636.60
484.40
152.20
24.80
19.50
29.30%

2013
107.60
-8.40
-7.24% Operating Performance relative to other firms in the industry.

44.60
33.20
291.23% Investment performance compared to investment benchmarks.