Acctng 2 – Conceptual Framework & Accounting Standards

Activity #9 – Investment in Equity Securities (100 points)

Submission Date: May 5, 2021
Class Discussion Date: May 7, 2021

Name: _________________ Program: _______________ Date: _____________

Exercise 1

1. When an investor does not have significant influence over the investee: (15 points)
a) At what amount Investment in Marketable Securities be carried on the statement
of financial position.
b) For trading securities, what items may affect net income.
c) For Investment in Securities @FVTOCI securities, what items may affect net
income.
d) What distinguishes trading securities from Investment in Securities @FVTOCI.
2. Discuss the rationale behind the requirement that reclassifications of investments between
FA@FVTOCI and FA@FVPL be made at market value rather than book value or cost.
(10 points)
3. What is meant by impairment loss on an investment in securities. (10 points)
4. Basically, the investor accounts for the receipt of an ordinary share dividend and a share
split in the same way. Briefly explain the accounting that should be followed by the
investor in these situations. (10 points)
5. What is a share right (share warrant)? If share rights have a market value, how would the
investor account for the receipt of share rights? (10 points)
6. Explain the following about accounting for equity securities under the equity method: (15
points)
a) Under what conditions it is appropriate to use the equity method.
b) At what amount securities accounted for with the equity method are carried on the
statement of financial position.
c) For equity securities, what items may affect net income.
d) Why the equity method is preferred for these securities.
7. What is meant by the term underlying as it relates to derivative financial instruments? (10
points)
8. What are the main distinctions between a traditional financial instrument and a derivative
financial instrument? (10 points)
9. In what situation will be unrealized holding gain or loss on a non-trading equity
investment be reported in income? (10 points)