CHAPTER 3

Accounting for Equity Investments: Available-for-Sale

LEARNING OBJECTIVES

After studying this chapter, you should have a grasp of the following:

  • Accounting standards for equity investments held as available-for-sale (AFS).
  • Basic understanding of available-for-sale securities.
  • Trade life cycle for equity investments held as available-for-sale.
  • Journal entries to be recorded during the different phases of the trade life cycle.
  • FX translation on available-for-sale securities.
  • Impairment of AFS securities.
  • Illustration of investments in equity shares held as available-for-sale.
  • Preparation of journal entries and general ledger accounts.
  • Preparation of income statement and balance sheet after the equity investments are made.
  • Illustration of available-for-sale investments in foreign currency.

ACCOUNTING STANDARDS FOR EQUITY INVESTMENTS: AVAILABLE-FOR-SALE

According to the accounting standards, available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as one of the following:

  • Loans and receivables.
  • Held-to-maturity investments.
  • Financial assets at fair value through profit or loss.

Thus, equity instruments that are not designated as financial assets at fair value through profit or loss are categorized as available-for-sale instruments. Additionally, investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, ...

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