Management Accounting I

July-October 2021
BMJ Term 1
Tuesday
(6 - 7pm)
debarati@xlri.ac.in
 Fair Value Through OCI (FVTOCI)
• Intention to collect and sell

• Value then becomes important!

• Revalue investment at market yield

 Eg: Yield at 10% at the end of year 1; =NPV(10%,150,150,1150) = 1,124

• Fair Value Gain = 1124 – 1072 = 52

• Debit Investment; Credit OCI 52

Basu, XLRI
 Amortization Schedule

Beginning Interest Closing

Interest Principal Fair Value
Year Amortized Income Recd Recd Amortized Fair Value Gain/Loss
Cost (10%) Cost

1         1072 1124 52
2 1124 112 150 0 1086 1086 0
3 1086 109 150 0 1045 1045 0
4 1045 105 150 1000 0 0 0

• Debit Cash 150; Credit Interest Income 112 and Investment 38

Basu, XLRI
 Fair Value Through PL (FVTPL)
• Residual Category – held for trade

• Debt instruments held for trading + equity instruments

• Change in market price

 Debit Investment; Credit Gain on Investment OR

 Debit Loss on Investment; Credit Investment

• Gain/Loss in PL

• Option to declare FVTOCI

Basu, XLRI
 Problems Discussion
• 7.2

• 7.3

• 7.4

• 7.9

• 7.12

Basu, XLRI
 Operating Investments
• Equity investments

• Intent: Business purpose

 Entering new markets

 Obtaining technology
 Sourcing raw materials etc.

• Long time horizon

• Subsidiaries / Joint Arrangements / Associates

Basu, XLRI
 Subsidiaries
• Parent has control over entity

• Control defined by
 Power: Directly/indirectly controls > half voting power
 Right over returns

• Consolidated financial statements:

 Combine items
 Eliminate intragroup items
 Recognize non-controlling interest in equity
Basu, XLRI
 Joint Arrangements & Associates
• Joint Arrangements: contractual arrangement with joint control

• Associates: Investor has significant influence (>= 20% voting power)

• Equity method / one-line consolidation (JVs and Associates)

 Investment recorded at cost of acquisition; Goodwill = Cost – Fair Value Share

 Profits increase investment; Losses decrease investment; Also affect PL
 Dividend decreases investment; Does not affect PL

Basu, XLRI
Questions for Next Class
8.11

Basu, XLRI