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, ...
