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Investments and Instruments (Equity Secuirites (Excludes (Equity Method…
Investments and Instruments
Equity Secuirites
Excludes
Equity Method Investments
Consolidations
No longer categorized as AFS/Trading
Debt secuirties still categorized as AFS/TTrading
REcorded
Fair Value
Cost <Net of Impairment>
If Value Not Determinable
Qualitative Assessment required to Determine Impairment
Unrealized Gains/Loss
Income Statement
Disclosures
Fair Value Disclosures Based on Exist Price
Price received if you sold the asset (i.e. Market Price)
Held to Maturity (DEBT) Securities
Recorded at Amortized Costs
Classified as Current or Non-Current Asset
Unrealized Gains/Losses
N/A
Reclassified?
Available for Sale
Unrealized G/L to Stockholder's Equity
Trading Secuities
Unrealized G/L recognized in Current Period in I/S
B/S Requirements
Separate Presentation
Financial Assets
Secuities
Loans
Financial Liabilites
Secuities
Loans
Derivatives
Recorded at Cost when acquired
Re-valued to Fair Value each period on Balance Sheet
Equity Securities
Unrealized Gains and Losses on I/S
Hedging
Fair Value Hedge
Offsets risks to changes in the value of a recognized asset/liability or of an unrecognized commitment
Ex: Interest Rate Swap that offsets risk that changes interest rates will materially change a company's risk with respect to debt
Recorded on B/S at Fair Value
Gain or Loss go to I/S
Cash Flow Hedge
Hedges exposure/risk to fluctuations in cash flows
Ex: A ceral company knows that it will be purchasing grain 10 months from now. To offset the risk that grain will go up in price in 10 months, they enter into a futures contract
Recorded on B/S at Fair Value
Gain or Loss to OCI, not I/S
Foreign Currency Hedge
Gain or Loss to OCI, not I/S
Required Disclosures
Objectives and Strategies
Context to help investor understand instrument
Risk Management Policies
Complete List of Hedged Instruments
Foreign Currency Transactions
Used for transaction denominated in something other than a company's functions currency
A US firm purchases goods on account from a company located in Japan
Agrees to pay the amount owed in yen
The Payable is denominated in a foreign currency (yen), and the transaction is a Foreign Currency Transaction
change in exchange rates occurs
Increase or decrese in expected amount of functional currency cash flow upon settlement results in a G/L
The Foreign Currency Transaction G/L goes to the Income Statement
Foreign Currency Translation
US Corporation has a subsidiary in a foreign country
Function/Reporting currency is the US dollar
The translation issue then becomes translating the F/S into the reporting currency of the parent for preparing consolidated F/S
G/L for translating F/S goes to OCI, not Income Statement
If Functional Currency = Local Currency
Asset and Liability Transaltion
Use current rate as of B/S date
Revenue and Expense Transalation
Use weighted average exchange rate of the current year
If Functional Currency = Reporting Currency
Foreign Currency F/S are re-measured into the reporting currency (Dollar) Using the weighted-average exchange rate
Historical Exchange Rates (Weighted Avg)
Inventory @ Cost
Prepaid Assets & PP+E
Current Exchange Rates (Weighed-avg)
Monetary Assets and Liabilities
Inventory @ Market
Trading Securities
Deferred Taxes