International Financial Statement Analysis Workbook, 3rd Edition

CHAPTER 15 INTERCORPORATE INVESTMENTS

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

• describe the classification, measurement, and disclosure under International Financial Reporting Standards (IFRS) for 1) investments in financial assets, 2) investments in associates, 3) joint ventures, 4) business combinations, and 5) special purpose and variable interest entities;
• distinguish between IFRS and US GAAP in the classification, measurement, and disclosure of investments in financial assets, investments in associates, joint ventures, business combinations, and special purpose and variable interest entities;
• analyze how different methods used to account for intercorporate investments affect financial statements and ratios.

SUMMARY OVERVIEW

• Investments in financial assets are those in which the investor has no significant influence. They can be measured and reported as
  • Fair value through profit or loss.
  • Fair value through other comprehensive income.

  • Amortized cost.

    IFRS and US GAAP treat investments in financial assets in a similar manner.

• Investments in associates and joint ventures are those in which the investor has significant influence, but not control, over the investee's business activities. Because the investor can exert significant influence over financial and operating policy decisions, IFRS and US GAAP require the equity method of accounting because it provides a more objective basis for reporting investment income.
• The equity ...