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PPT On Equity Investment

Home > PowerPoint Slides > PPT On Equity Investment
Published in: Accountancy: Tax | Finance: Banking
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Applicable standard in UAE for Investment at Fair Value and Trading.

Clent M / Dubai

5 years of teaching experience

Qualification: Certified Public Accountant

Teaches: Olympiad Exam Preparation, Finance, Mathematics, Accounting, CPA

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  1. Equity Investments—Trading (Income) Illustration: November 3, 2015, Republic Corporation purchased ordinary shares of three companies, each investment representing less than a 20 percent interest. These shares are held-for-trading. Burberry Nestlé St. Regis Pulp Co. Total cost Cost €259,700 31 7,500 141 ,350 €71 8,550 Republic records these investments as follows: 17-1 L05
  2. Equity Investments —Trading Burberry Nestlé St. Regis Pulp Co. Total cost Republic records these investments as follows: Equity Investments Cash 718,550 Cost €259,700 31 7,500 141 ,350 €71 8,550 718,550 On December 6, 2015, Republic receives a cash dividend of €4,200 on its investment in the ordinary shares of Nestlé. Cash Dividend Revenue 17-2 4, 200 4, 200 L05
  3. Equity Investments—Trading (Income) EQUITY INVESTMENT PORTFOLIO DECEMBER 31, 2015 Investments Burberry Nestlé St. Regis Pulp Co. Total of portfolio Previous fair value adjustment balance Fair value adjustment— ILLUSTRATION 17-17 Computation of Fair Value Adjustment— Equity Investment Portfolio (2015) 17-3 Carrying Value €259,700 317,500 141 ,350 €718,550 Cr. Fair Value €275,000 304,000 104,000 €683,000 Unrealized Gain (Loss) € 15,300 (13,500) (37,350) (35,550) L05
  4. Equity Investments—Trading (Income) EQUITY INVESTMENT PORTFOLIO DECEMBER 31, 2015 Investments Burberry Nestlé St. Regis Pulp Co. Total of portfolio Previous fair value adjustment balance Fair value adjustment— ILLUSTRATION 17-17 Carrying Value €259,700 317,500 141 ,350 €718,550 Fair Value €275,000 304,000 104,000 €683,000 Cr. Unrealized Holding Gain or Loss—Income Fair Value Adjustment 17-4 Unrealized Gain (Loss) € 15,300 (13,500) (37,350) (35,550) 35,550 35,550 L05
  5. Equity Investments—Trading (Income) On January 23, 201 6, Republic sold all of its Burberry ordinary shares, receiving €287,220. Net proceeds from sale ILLUSTRATION 17-18 Computation of Gain on Sale of Burberry Shares Cost of Burberry shares Gain on sale of shares Cash Equity Investments Gain on Sale of Equity Investment 17-5 €287,220 259,700 € 27,520 287,220 259,700 27,520 L05
  6. Equity Investments—Trading (Income) In addition, assume that on February 10, 201 6, Republic purchased €255,000 of Continental Trucking ordinary shares (20,000 shares €12.75 per share), plus brokerage commissions of €1 ,850. Republic's equity investment portfolio as of December 31 , 2016. ILLUSTRATION 17-19 Computation of Fair Value Adjustment— Equity Investment Portfolio (2016) 17-6 EQUITY INVESTMENT PORTFOLIO DECEMBER 31, 2016 Investments Continental Trucking Nestlé St. Regis Pulp Co. Total of portfolio Previous fair value adjustment balance—Cr. Fair value adjustment— Dr. Carrying Value €255,oooa 317,500 141 ,350 €713,850 Fair Value €278,350 362,550 139,050 €779,950 Unrealized Gain (Loss) € 23,350 45,050 (2,300) 66,100 (35,550) €101 ,650 aThe brokerage commissions are expensed.
  7. EQUITY INVESTMENT PORTFOLIO DECEMBER 31 , 2016 Investments Continental Trucking Nestlé St. Regis Pulp co. Total of portfolio Previous fair value Carrying Value €255,oooa 317,500 141 ,350 €713,850 Fair Value €278,350 362,550 139,050 €779,950 adjustment balance—Cr. Fair value adjustment— Dr. aThe brokerage commissions are expensed. Republic records this adjustment as follows. Fair Value Adjustment Unrealized Gain (Loss) € 23,350 45,050 (2,300) 66,100 (35,550) €101 ,650 ILLUSTRATION 17-19 101 ,650 Unrealized Holding Gain or Loss—Income 17-7 101 ,650 L05
  8. o Impty 17-8
  9. Equity Investments—Non-Trading (OCI) The accounting entries to record non-trading equity investments are the same as for trading equity investments, except for recording the unrealized holding gain or loss. Report the unrealized holding gain or loss as other comprehensive income. 17-9 L05
  10. Equity Investments—Non-Trading (OCI) Illustration: On December 10, 2015, Republic Corporation purchased 1 ,000 ordinary shares of Hawthorne Company for €20.75 per share (total cost €20,750). The investment represents less than a 20 percent interest. Hawthorne is a distributor for Republic products in certain locales, the laws of which require a minimum level of share ownership of a company in that region. The investment in Hawthorne meets this regulatory requirement. Republic accounts for this investment at fair value. Equity Investments Cash 17-10 20,750 20,750 L05
  11. Equity Investments—Non-Trading (OCI) On December 27, 2015, Republic receives a cash dividend of €450 on its investment in the ordinary shares of Hawthorne Company. It records the cash dividend as follows. Cash Dividend Revenue 17-11 450 450 L05
  12. Equity Investments—Non-Trading (OCI) At December 31 , 2015, Republic's investment in Hawthorne has the carrying value and fair value shown. Non-Trading Equity Investment Hawthorne Company Previous fair value adjustment balance Fair value adjustment (Dr.) ILLUSTRATION 17-20 Computation of Fair Value Adjustment—Non-Trading Equity Investment (2015) Carrying Value €20,750 Republic records this adjustment as follows. Fair Value Adjustment Unrealized Holding Gain or Loss—Equity Fair Value €24,000 3,250 17-12 Unrealized Gain (Loss) €3,250 €3,250 3,250 L05
  13. Equity Investments—Non-Trading (OCI) Statement of Financial Position Investments Equity investments Equity Accumulated other comprehensive gain Statement of Comprehensive Income Other income and expense Dividend revenue Other comprehensive income Unrealized holding gain ILLUSTRATION 17-21 Financial Statement Presentation 17-13 €24,000 € 3,250 L05
  14. Equity Investments—Non-Trading (OCI) On December 20, 201 6, Republic sold all of its Hawthorne Company ordinary shares receiving net proceeds of €22,500. Non-Trading Equity Investment Hawthorne Company at 12/20/2016 Previous fair value adjustment balance (Dr.) Change in the Fair Value Adjustment account (loss) ILLUSTRATION 17-22 Adjustment to Carrying Value of Investment Cost €20,750 Fair Value Unrealized Gain (Loss) €22,500 € 1,750 (3,250) ,500) Entry to adjust the carrying value of the non-trading investment. Unrealized Holding Gain or Loss—Equity Fair Value Adjustment 17-14 I ,500 I ,500 L05
  15. Equity Investments—Non-Trading (OCI) On December 20, 201 6, Republic sold all of its Hawthorne Company ordinary shares receiving net proceeds of €22,500. Non-Trading Equity Investment Hawthorne Company at 12/20/2016 Previous fair value adjustment balance (Dr.) Cost €20,750 Fair Value Unrealized Gain (Loss) €22,500 € 1,750 (3,250) ,500) Change in the Fair Value Adjustment account (loss) ILLUSTRATION 17-22 Adjustment to Carrying Value of Investment Entry to record the sale of the investment. Cash Equity Investments Fair Value Adjustment 17-15 22,500 20,750 1 ,750 L05

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