Intermediate_Accounting_Ch17_IFRS.pptVIP

Transfers Between Categories LO 8 Describe the accounting for transfer of investments between categories. Illustration: As part of its strategic planning process, completed in the fourth quarter of 2010, British Sky management decides to move from its prior strategy—which requires active management—to a held-for-collection strategy for these debt investments. British Sky makes the following entry to transfer these securities to the held-for-collection classification. Debt Investments 125,000 Securities Fair Value Adjustment 125,000 Measurement Based on Business Model Gains Trading Liabilities Not Fairly Valued Fair Values—Final Comment Fair Value Controversy LO 8 Describe the accounting for transfer of investments between categories. Reporting Treatment of Investments LO 8 Describe the accounting for transfer of investments between categories. Illustration 17-26 U.S. GAAP classifies investments as trading, available for-sale (both debt and equity investments), and held to-maturity (only for debt investments). IFRS uses held-for-collection (debt investments), trading (both debt and equity investments), and non-trading equity investment classifications. The accounting for trading investments is the same between U.S. GAAP and IFRS. Held-to-maturity (U.S. GAAP) and held-for-collection investments are accounted for at amortized cost. Gains and losses related to available-for-sale securities (U.S. GAAP) and non-trading equity investments (IFRS) are reported in other comprehensive income. Both U.S. GAAP and IFRS use the same test to determine whether the equity method of accounting should be used—that is, significant influence with a general guide of over 20 percent ownership. The basis for consolidation under IFRS is control. Under U.S. GAAP, a bipolar approach is used, which is a risk-and-reward model (often referred to as a variable-entity approach) and a voting-interest approach. However, under both systems, for consolidation to occur, the investor company mus