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PowerPoint Authors:

Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA

Investments

12

McGraw-Hill/IrwinCopyright 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

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U. S. GAAP vs. IFRS

U.S. GAAP also allowstransfers out of the tradingsecurity category.

Reclassifications underU.S.GAAP are rare.

Until recently, IFRS did not allow transfers out of theirfair value through profit and loss classification.

IAS No. 39 now allows transferof debt investments out of thefair value category into AFS or

HTM in rare circumstances. The current financial crisis

qualified as one of thosecircumstances.

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U. S. GAAP vs. IFRS

U.S. GAAP permitsclassification as HTM, AFS,and TS.

No significant tests arerequired to classify a debtinvestment.

There is no comparableFVTPL or FVTOCIclassification.

IFRS No. 9 eliminates the HTM andAFS classifications, replaced by newclassifications that are more restrictive. This has the general effect ofpushing more investments into being accounted for at Fair Value ThroughProfit & Loss (FVTPL), and thus having unrealized gains and lossesincluded in net income.

Investments in debt securities areclassified as either Amortized Costor FVTPL.

To be classified as a debt investment,

two important tests must be met. Thecurrent financial crisis qualified as oneof those circumstances.

Investments in equity securities areclassified as either FVTPL orFVTOCI (Fair Value through Other

Comprehensive Income).

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U. S. GAAP vs. IFRS

U.S. GAAP has no prohibitionagainst transfers betweencategories as long as they can

be reasonably justified.

Until recently, IFRS did not allow transfers out of the fair valuethrough P&L (FVTPL) classification (which is roughlyequivalent to the trading securities classification in U.S. GAAP).

In recent changes, IAS No. 39allows transfers of debtinvestments out of the FVTPL

category into AFS or HTM inrare circumstances,

The 2008, financial crisisqualifies as one of those rarecircumstances.

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U. S. GAAP vs. IFRS

IFRS, unlike U.S. GAAP,there is no equivalent torecognizing OCI any non-credit losses on debtinvestments.

UnderIAS No. 39, companies recognize OTT impairments if there existsobjective evidence of impairment. Objective evidence must relate to one ormore events occurring after initial recognition of the asset that affect thefuture cash flows that are going to be generated by the asset.

Calculation of the amount ofimpairment differs depending on theclassification of an investment.

Under IFRS, an OTT impairment for adebt investment is likely to be larger if

it is classified as AFS than if it isclassified as HTM, because itincludes the entire decline in fairvalue if classified as AFS but only thecredit loss if classified as HTM.

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Nature of Investments

Bonds andnotes

(Debtsecurities)

Common andpreferred stock

(Equitysecurities)

Investments can be accounted for in avariety of ways, depending on the natureof the investment relationship.

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Reporting Categories for Investments

Control Characteristics of the Investment Reporting Method Used by the Investor

The investor lacks significant influence over the

operating and financial policies of the investee:

Investment in debt securities for which the investor

has the "positive intent and ability" to hold to

maturity.

Held-to-maturity (HTM) - investment reported at

amortized cost.*

Investment held in an active trading account.

Trading securities (TS) - investment reported at fair

value with unrealized holding gains and losses included

in net income.

Other.

Securities available-for-sale (AFS) - investment

reported at fair value with unrealized holding gains and

losses excluded from net income and reported in other

comprehensive income.*

The investor has significant influence over the

operating and financial policies of the investee:Typically the investor owns between 20% and 50%

of the voting stock of the investee.

Equity method - investment cost adjusted for

subsequent earnings and dividends of the investee.*

The investor controls the investee:

The investor owns more than 50% of the voting

stock of the investee.

Consolidation - the financial statements of the investor

and investee are combined as if they are a single

company.

Reporting Categories for Investments

* If the investor elects the fair value option , this type of investment also can be accounted for using the same approach that's used for

trading securities, with the investment reported at fair value and unrealized holding gains and losses included in earnings.

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Fair Value Option

GAAP allows companies to use a fair value option for HTM, AFSGAAP allows companies to use a fair value option for HTM, AFSand equity method investments.and equity method investments.

The investment is carried at fair value.The investment is carried at fair value.Unrealized gains and losses are included in income.Unrealized gains and losses are included in income.

For HTM and AFS investments, this amounts to classifying theFor HTM and AFS investments, this amounts to classifying theinvestments as trading.investments as trading.

For equityFor equity--method investments, the investment is still classified onmethod investments, the investment is still classified onthe balance sheet with equity method investments, but the portion atthe balance sheet with equity method investments, but the portion at

fair value must be clearly indicated.fair value must be clearly indicated.

The fair value option is determined for each individual investment,The fair value option is determined for each individual investment,and is irrevocable.and is irrevocable.

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Other Investments Appendix 12A

It is often convenient for companies to set aside money tobe used for specific purposes. In the short-term, funds maybe set aside for

1. Petty cash funds.

2. Payroll accounts.

In the long-run, funds are often set aside to:

1. Pay long-term debt when it comes due.

2. Acquire treasury stock.

Special purpose funds set aside for the long-term areclassified as investments.

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Appendix 12A Other Investments

It is a common practice for companies to purchaselife insurance policies on key officers. The

company pays the premium and is the beneficiaryof the policy. If the officer dies, the company

receives the proceeds from the policy. Some typesof policies build a portion of each premium as cashsurrender value. The cash surrender value of such

a policy is classified as an investment on the

balance sheet of the company.

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Investor Lacks Significant InfluenceSection

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Investor Lacks Significant Influence

Reporting Approach

reatment of Unrealized

Holding Gains and Losses

Investment

Reported in the

Balance Sheet at

Held-to-maturity (H M): used for debt Not recognized Amortized Cost

that is planned to be held for it entire

life

Trading ( S): used for debt or equity Recognized in net income Fair Value

that is held in an active trading and therefore in retained

account for immediate resale or for earnings as part of

which the fair value option had been stockholders' equity

elected.

Available-for-sale (AFS): used for debt Recognized in other Fair Value

or equity that does not qualify as comprehensive income

held-to-maturity or trading. and therefore in

accumulated other

comprehensive income

in shareholders' equity

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Securities to Be Held to Maturity

Investments in bonds or other debt security that have aspecified maturity date. The bonds or other debt are initiallyrecorded at cost. The investor may have the positive intentand ability to hold the securities to maturity and classified

as held-to-maturity (HTM).They are reported on the balance sheet at amortized cost.

Amortized cost (Face amount less unamortized

discount, or plus unamortized premium).

Balance

Sheet

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On January 1, 2011, Matrix, Inc. purchased as an investment$1,000,000, of10%, 10-year bonds, interest paid semi-

annually. The market rate for similar bonds is 12%. Lets lookat calculation of the present value of the bond issue.

PresentAmount PV Factor Value

Interest $ 50,000 11.46992 = $573,496

Principal 1,000,000 0.31180 = 311,805Present value of bonds $885,301

PV of ordinary annuity of $1, n = 20, i = 6%

PVof $

1, n =

20, i = 6%

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Interest Interest Discount Unamortized Carrying

Date Payment Revenue Amortization Discount Value

1/1/11 114,699$ ,301$

6/30/11 50,000$ 53,118$ 3,118$ 111,581 888,419

12/31/11 50,000 53,305 3,305 108,276 891,724

6/30/12 50,000 53,503 3,503 104,772 895,228

12/31/12 50,000 53,714 3,714 101,059 898,941


Partial Bond Amortization Table

January 1, 2011Investment in bonds 1,000,000

Discount on bond investment 114,699Cash 885,301

June 30, 2011Cash (stated rate face amount) 50,000Discount on bond investment 3,118

Investment revenue 53,118

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June 30, 2011

Investment in bonds 1,000,000$

Less: Discount on bond investment 111,581

Book value (amortized cost) 888,419$

$114,699 - $3,118 = $111,581 unamortized discount

This investment would appear on theJune 30, 2011, as follows:

Unrealized holdinggains and losses are notrecognized for HTM investments.

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Interest Interest Discount Unamortized Carrying

Date Payment Revenue Amortization Discount Value

1/1/11 114,699$ 885,301$

6/30/11 50,000$ 53,118$ 3,118$ 111,581 888,419

12/31/11 50,000 53,305 3,305 108,276 891,724

6/30/12 50,000 53,503 3,503 104,772 895,228

12/31/12 50,000 53,714 3,714 101,059 898,941


On December 31,2011

, after interest is received byMatrix, all the bonds are sold for $900,000 cash.

December 31, 2011Cash 50,000

Discount on bond investment 3,305Investment revenue 53,305

December 31, 2011Cash 900,000Discount on bond investment 108,276

Investment in bonds 1,000,000Gain on sale of investment 8,276

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Trading Securities

Investments in debt or equity securities acquired principallyfor the purpose of selling them in the near term.Adjustments to fair value are recorded:

1. in a valuation account called Fair Value Adjustment, or

as a direct adjustment to the investment account.2. as a net unrealized holding gain/loss on the Income

Statement.

U

nrealized GainU

nrealized Loss

Income

Statement

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Trading Securities

Matrix, Inc. purchasedMatrix, Inc. purchased securitiessecurities classified as Tradingclassified as TradingSecurities (TS)Securities (TS) on December22, 2011.on December22, 2011. The fair valueThe fair value

amountsamounts for these securities onfor these securities on December 31,December 31, 2011, are2011, areshown below.shown below. Prepare the journal entries for Matrix, Inc. toPrepare the journal entries for Matrix, Inc. to

showing the purchase of the securities, and adjustshowing the purchase of the securities, and adjust thethesecurities to fair value atsecurities to fair value at 12/31/11.12/31/11.

12/31/11 Unrealized

No. of Unit Total Fair Gain or

T e Name Shares Cost Cost Value (Loss)

TS Mining, Inc 1,000 42.00$ 42,000$ 41,000$ (1,000)$TS Toys and Things 1,500 15.00 22,500 20,000 (2,500)

Totals 64,500$ 61,000$ (3,500)$

12/22/11

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Trading Securities

December 22, 2011Investment in Mining, Inc. stock 42,000Investment in Toys and Things stock 22,500

Cash 64,500

December 31, 2011Net unrealized holding gains and losses I/S 3,500

Fair value adjustment 3,500

Sec r C F r e Adjustment

Mining, nc 42,000$ 41,000$ (1,000)$

T s nd Th ings 22,500 20,000 (2,500)

T tal 64,500$ 61,000$ (3,500)$

Existing balancein fair alueadjustment -0-

Changeneededin fair alueadjustment (3,500)$

Reported on the balance sheet asa adjunct account to the investment.

The Net Unrealized Holding Loss is

reported on the Income Statement.

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Trading Securities

On January 3, 2012, Matrix sold all trading securities for$65,000 cash. Lets record the entry for the sale and the

adjustment to the fair value adjustment account.

January 3, 2012

Cash 65,000Investment in Mining, Inc. stock T/S 42,000Investment in Toys and Things stock T/S 22,500Gain on sale of investment 500

December 31, 2012


Net unrealized holding gains or losses I/S 3,500

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Financial Statement Presentation

Trading securities are presented on the financialstatement as follows:

1. Income Statement and Comprehensive Income Statement:Fair value changes are included on the income statement in theperiods in which they occur, regardless of whether they are

realized or unrealized. Investments in trading securities do notaffect other comprehensive income.

2. Balance Sheet: Securities are reported at fair value, typically ascurrent assets, and do not affect accumulated othercomprehensive income in shareholders equity.

3. Cash Flow Statement: Cash flows from buying and sellingtrading securities typically are classified as operating activities,because the investor that hold trading securities consider them aspart of their normal operations.

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Presented below are the partial financial statements showingthe accounting for TS owned by United:

In e State ent 2011 2012

Revenue $ $

Expenses

Other income (expenses):

Interest and dividend income 121, -0-

Realized and unrealized gains and losses on investments (16, ) 1,057

Total expenses

Net income

Balan e S eet

Assets:

Trading securities 3,154, 43 985,000

State ent of Cas Flows (dire t method)

Operating Activities:

Cash from investment revenue 117,000 -0-

Purchase of trading securities (3,166,633) -0-

Sale of trading securities -0- 2,141,000

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Securities Available-for-Sale

Investments in debt or equity securities that are not foractive trading and not to be held to maturity are classified asavailable-for-sale (AFS).Adjustments to fair value are recorded:

1. in a valuation account called fair value adjustment, or asa direct adjustment to the investment account.

2. as a net unrealized holding gain/loss in othercomprehensive income (OCI), which accumulates inaccumulated other comprehensive income (ACOI).

Unrealized Gain Unrealized Loss

Other Comprehensive

Income (OCI)

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Other Comprehensive Income (OCI)

Other comprehensive income:

Foreign currency translation gains (losses) $ XX,XXX

Net unrealized holding gains (losses) on investments -12,500

Minimum pension liability adjustment XXX

Deferred gains (losses) from derivatives XXX $ XX,XXX

Less: aggregate income tax expense (benefit) X,XXX

Other comprehensive income $ XX,XXX

When we add other comprehensive income to netincome we refer to the result as comprehensive income.

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Accumulated Other ComprehensiveIncome

Unrealized holding gains and losses on available-for-sale securities are accumulated in the

shareholders equity section of the balance sheet.

Specifically, the account is included in accumulatedother comprehensive income (AOCI).

Shareholders EquityCommon StockPaid-in Capital in Excess of par

Accumulated other comprehensive incomeRetained earningsTotal Shareholders Equity

Net unrealizedholding gains

and losses.

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Securities Available for Sale Example

Assume the same information for our T/Sexample for Matrix, Inc., except that the

investments are classified as available-for-salesecurities rather than trading securities.

Securi C s air Value A jus ent

Mining, Inc 42,000$ 41,000$ (1,000)$

T sand T ings 22,500 20,000 (2,500)

T tal 64,500$ 61,000$ ( ,500)$

E isting balance in fair value adjustment -0-

C ange needed ( ,500)$

December 31, 2011Net unrealized holding gains and losses OCIOCI 3,500


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AFS securities are presented on the financial statement asfollows:

1. Income Statement and Comprehensive Income Statement:Realizedgains and losses are shown in net income in the period in

which securities are sold. Unrealizedgains and losses are shownin OCI in the periods in which changes in fair value occur, andreclassified out of OCI in the periods in which securities are sold.

2. Balance Sheet: Investments in AFS securities are reported at fairvalue. Unrealizedgains and losses affect AOCI in shareholders

equity, and are reclassified out of AOCI in the periods in whichsecurities are sold.3. Cash Flow Statement: Cash flows from buying and selling AFS

securities typically are classified as investing activities.

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Presented below are the partial income statement showingthe accounting for AFS ofUnited:

Incom tat m nt

Revenue $ $

Expen es

Other inc me (expenses):Interest anddividendinc me 121, -0-

Realizednet l ss on sale ofinvestments -0- (297)

Total expenses

Net income

Other comprehensive income (loss) items:

Unrealizedholdin gains (losses) oninvestments (16, ) (5,000)

Reclassificationadjustment for net gains (losses) -0- 6, 54

Total (16, 54) 1, 54

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Finally, we have the partial balance sheet and statement ofcash flows for the company.

Balance Sheet 2011 2012

Assets:

Available-for-sale securities 3,154,943$ 985,000$Stockholders' equity:

Accumulated other comprehensive income (16,354) (15,000)

Statement of Cash Flows (direct method)

Operating Activities:

Cash from investgment revenue 117,000 -0-

Investing Activities:

Purchase of available-for-sale securities (3,166,633) -0-

Sale of available-for-sale securities -0- 2,171,000

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Financial Statement Presentationand Disclosure

AggregateFairValue

Maturities ofdebt securities

Change in netunrealized holdinggains and losses

Gross realized &unrealized holding

gains & losses

Amortized costbasis by majorsecurity type

Inputs to fairvalue estimates

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Impairment of Investments

Occasionally, anOccasionally, aninvestments value willinvestments value will

decline for reasonsdecline for reasons

that are other thanthat are other thantemporary (OTT).temporary (OTT).

Impairment

in Value

For HTM and AFS investments, a company recognizes an

OTT impairment loss in earnings. Determining an otherthan temporary decline for debt securities can be quitecomplex. For both equity and debt investments, after anOTT impairment is recognized, the ordinary treatment of

unrealized gains and losses is resumed.

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Appendix 12B Impairment of Investments

If the fair value of an investment declines to a level belowcost, and that decline is not viewed as temporary, companiestypically have to recognize an other-than-temporary (OTT)impairment loss in earnings.

We use a three-step process to determine whether an OTTimpairment loss must be recognized: (1) determine if theinvestment is impaired, (2) determine whether any

impairment is OTT, and (3) recognize any OTT impairment inthe financial statements.

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Appendix 12B Impairment of InvestmentsUnited Intergroup, Inc., buys and sells both debt and equity securities of

other companies as investments.Uniteds fiscal year-end is December 31.The following events during 2011 and 2012 pertain to the investmentportfolio. Purchase Investment: July 1, 2011, $1,000,000 of Bendaccommon stock. Adjust Investment to FairValue: December 31, 2011Valued the Bendac stock at $990,000 and determined that the decline in

FV should not be treated as an OTTimpairment. December 31, 2012Valued the Bendac stock at $985,000 and determined that the decline inFV should be treated as an OTT impairment The journal entries to recordthe adjustments of the Bendac stock investment to fair value are:

December 31, 2011Net unrealized holding gains and losses OCI 10,000


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December 31, 2012Other-than-temporary impairment loss I/S 15,000

Investment in Bendac 15,000

Fair value adjustment 10,000Net unrealized holding gains and losses OCI 10,000

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United Intergroup, Inc., buys and sells both debt and equity securities ofother companies as investments, and classifies these investments as AFS.Uniteds fiscal year-end is December 31. The following events occurredduring 2012, Purchase Investment: July 1, 2012, $1,000,000 of Bendacbonds, maturing on December 31, 2017. Adjust Investment to FairValue: December 31, 2012, valued the Bendac bonds at $950,000. Of the

$50,000, impairment, $30,000 is credit loss and $20,000 is noncredit loss.Case 1: United either plans to sell the investment or believes it is morelikely than not that it will have to sell the investment before fair valuerecovers.Case 2: United does not intend to sell the investment and does not believe

it is more likely than not that it will have to sell the Bendac investmentbefore fair value recovers, but estimates that $30,000 of credit losses haveoccurred.

Lets look at the necessary journal entries in these two cases.

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December 31, 2012OTT impairment loss I/S 50,000

Discount on bond investment 50,000

Case 1

Case 2

December 31, 2012OTT impairment loss I/S 30,000

Discount on bond investment 30,000

OTT impairment loss - OCI 20,000Fair value adjustment Noncredit loss 20,000

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Investor HAS Significant Influence

Section

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Investor Has Significant Influence

ControlCharacteri ticsofthe Investment Reporting Method Used y the Investor

Theinvestorlacks significant influence overthe

operatingandfinancialpoliciesoftheinvestee:

Investment n ebtsecur ties f r hich theinvestor

hasthe ositiveintent and ability"to holdto

maturity.

Held-to-maturity (HTM) investment reported at

amortized cost.*

Investment heldin an activetrading account. Tradingsecurities(TS) investment reported at fair

value ith unrealized holdinggains andlossesincludedinnetincome.

Other. Securitiesavailable-for-sale( S)-investment

reported at fair value ith unrealized holdinggains

andlossesexcluded fromnetincome and reportedin

Other omprehensiveincome.*

Theinvestor has significant influence overthe

operatingandfinancialpoliciesoftheinvestee:

Typicallytheinvestor ownsbetween % and %

ofthevotingstockoftheinvestee.

Equity method-investmentcost adjusted for

subsequentearnings anddividendsoftheinvestee.*

Theinvestorcontrols theinvestee:

Theinvestor ownsmorethan % ofthevoting

stockoftheinvestee.

Consolidation-the financialstatementsofthe

investor andinvestee arecombined asifthey are a

singlecompany.

ReportingCategoriesfor Investments

*Iftheinvestor electsthe fair value option,thistypeofinvestment alsocanbe accounted for usingthesame approach that'sused for

tradingsecurities,with theinvestment reported at fair value andunrealized holdinggains andlossesincludedinearnings.

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Investor Has Significant InfluenceExtent o Investo Infl ence Repo ting etho

Lack of significant influence

usually < 20 e uity o ners ip)

Varies depending on classification

previously discussed

Significantinfl ence

( suall % - % equity ownership)Equity etho

Has control

usually > 50 e uity o ners ip) onsolidation

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What Is Significant Influence?

If an investor owns 20% of the voting stock of an investee, it ispresumed that the investor has significant influence over the financialand operating policies of the investee. The presumption can beovercome if :1. the investee challenges the investors ability to exercise significant

influence through litigation or other methods.

2. the investor surrenders significant shareholder rights in a signedagreement.

3. the investor is unable to acquire sufficient information about the

investee to apply the equity method.

4. the investor tries and fails to obtain representation on the board ofdirectors of the investee.

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A Single Entity Concept

Under the equity method . . .1. The investor recognizes investment income equal to its

percentage share (based on stock ownership) of the netincome earned by the investee rather than the portion of

that net income received as cash dividends.

2. Initially, the investment is recorded at cost. The carryingamount of this investment subsequently is:a) Increased by the investors percentage share of the

investees net income (or decreased by its share of aloss).

b) Decreased by dividends paid.

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Equity Method

On January 1,On January 1, 2011, Wilmer,2011, Wilmer, Inc. acquired 45% ofInc. acquired 45% ofthe equity securities of Apex, Inc. for $1,350,000.the equity securities of Apex, Inc. for $1,350,000.On the acquisition date, Apexs net assets had aOn the acquisition date, Apexs net assets had a

fair value of $3,000,000. Duringfair value of $3,000,000. During 2011,2011, ApexApex paidpaidcash dividendscash dividends of $150,000 and reported netof $150,000 and reported netincome of $1,750,000.income of $1,750,000.

What amount will Wilmer, Inc. report on the balance sheetas Investment in Apex, Inc. on December 31, 2011?

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Equity Method

3,000,000$ Fair value of net assets

45% Percentage ownership

1,350,000$ Fair value of assets purchased

January 1, 2011Investment in Apex, Inc. stock 1,350,000

Cash 1,350,000

1,750,000$ Reported earnings


787,500$ Share of earnings

2011

Investment in Apex, Inc. stock 787,500Investment revenue 787,500

2011

Cash 67,500Investment in Apex, Inc. stock 67,500

150,000$ Dividends paid


67,500$ Share of dividends

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Equity Method

Investment in Apex, Inc.

Investment 1,350,000 67,500 45% Dividends

45% Earnings 787,500

Reported amount 2,070,000

If the investee had a loss,the investment account

would have beenreduced.

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Equity Method

On January1,2011

, Wilmer, Inc. purchased25%

of thecommon stock of Apex, Inc. for $180,000. At the date ofacquisition, the book value of the net assets of Apex was$400,000, and the fair value of these assets is $600,000.During 2011, Apex paid cash dividends of $40,000, and

reported earnings of $100,000.

air value of assets 600,000$

ercentage ownership 25%

Share of fair value of assets 150,000ost of investment in Apex 180,000

Excess of cost over fair value 0,000$

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Equity Method

The excess of the fair value of net assets over book value ofthose net assets is 75% is attributable to depreciable assetswith a remaining life of20 years and 25% is attributable to

land. Wilmer uses the straight-line depreciation.

Fairval ofnetassets 600,000$

Bookval eofnetassets 400,000

ifference 200,000

Percentageofnetassetsacq ired 25%

Excess 50,000

mo ntattri tabletoland(25% orexcess 12,500mo ntattributabletodepreciableassets 7,500

emaininglifeofdepreciableassets 20 ears

dditionaldepreciationexpenseper ear 1, 75$

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Equity Method

40,000$ Dividends paid


10,000$ Share of dividends

100,000$ Reported earnings


25,000$ Share of earnings

January 1, 2011Investment in Apex stock 180,000Cash 180,000

2011

Cash 10,000

Investment in Apex stock 10,000

Investment in Apex stock 25,000Investment revenue 25,000

December 31,2011

Investment revenue 1,875Investment in Apex stock 1,875

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Changing From the Equity Method toAnother Method

At the transfer date,the carrying valueof the investment

under the equitymethod is regarded

as cost.

When the investors level of influence changes, itmay be necessary to change from the equity

method to another method.

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Changing From Another Method to theEquity Method

When the investors ownership level increases to thepoint where they can exert significant influence, the

investor should change to the equity method.

At the transfer date, the recorded value is the initialcost of the investment adjusted forthe investors

equity in the undistributed earnings of the investeesince the original investment.

eported earnings

ividends paid

Undistributed Earnings

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Changing From Another Method to theEquity Method

The original cost, the unrealized holdinggain or loss, and the valuation account

are closed.A retroactive change is recorded torecognize the investors share of the

investees earnings since the originalinvestment.

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Financial Instruments andInvestment Derivatives

Financial Instruments:Financial Instruments:

1.1. Cash.Cash.

2.2. Evidence of anEvidence of anownership interestownership interestinin

an entity.an entity.

3.3. Contracts meetingContracts meetingcertain conditions.certain conditions.

Investment Derivatives:Investment Derivatives:

1.1. Value is derived fromValue is derived fromother securities.other securities.

2.2. Derivatives are oftenDerivatives are oftenused to hedge (offset)used to hedge (offset)risks created by otherrisks created by otherinvestments orinvestments or

transactionstransactions

Documents

Chap012 gmg