1. Financial Accounting II Lecture 16

2. Long Term Investments

3. Long Term investments are classified under following categories. Investment in Associated Undertaking Other Investments. Long Term Investments

4. Investment in associated undertaking can be an investment in Subsidiary Companies Associated Companies Interest in Joint Ventures Long Term Investments

5. Other Long Term Investments are classified as ( IAS 32 and 39) Held to maturity investments Available for sale investments Long Term Investments

6. Held to maturity investments are the investments, where the investment has a specific maturity date and the management has both the intent and ability to hold an investment till the date of maturity. Long Term Investments

7. Investments held to maturity do not include: – Those that the entity designates as available for sale; and – Those that meet the definition of loans and receivables Long Term Investments

8. Examples of Long Term Investments: – Term Finance Certificates – Certificates of Investments – Defense Saving Certificates Long Term Investments

9. Available-for-sale financial assets are those financial assets that are not: Loans and receivables originated by the entity, Held-to-maturity investments, or Long Term Investments

10. Investments whose fair value cannot be reliably measured should be measured at cost Long Term Investments

11. Associa ted Undert aking SubsidiaryIAS 27-At Cost OR -Under IAS 39 AssociateIAS 28-Equity method Interest In JV IAS 31-Proportionate Consolidation OR -Equity Method OthersHeld to Maturity IAS 32 & 39 -At Amortized Cost Available for Sale IAS 32 & 39 -Fair Value

12. Under the equity method of accounting, an equity investment is initially recorded at cost and is subsequently adjusted to reflect the investor's share of the net profit or loss of the associate. Equity Method for Associate

13. Distributions (dividend) received from the investee reduce the carrying amount of the investment. Equity Method for Associate

14. Under proportionate consolidation, the balance sheet of the venturer includes its share of the assets that it controls jointly and its share of the liabilities for which it is jointly responsible. The income statement of the venturer includes its share of the income and expenses of the jointly controlled entity. Proportionate Consolidation (JV)

15. The equity method in JV is the same as that in the associate. Equity Method (JV)

16. Amortised cost is calculated using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset. Amortized Cost (Held to Maturity)

17. Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable willing parties in an arms length transaction. Fair Value (Available for Sale)

18. Disclosure Requirements of Subsidiary, Associate and Interest in JV have been discussed in the last lecture. Disclosure Requirements

19. For each class of financial asset and equity instrument, disclose the following: – information about the extent and nature of the financial instruments, including significant terms and conditions that may affect the amount, timing and certainty of future cash flows; and – the accounting policies and methods adopted, including the criteria for recognition and the basis of measurement applied. Disclosure Requirements

20. Disclosures about Fair Value of Financial Instruments Disclose the fair value of each class of financial assets and Also, disclose: the methods and significant assumptions applied in determining fair values of financial assets and financial liabilities. whether fair values of financial assets and financial liabilities are determined directly, in full or in part, by reference to published price quotations in an active market or are estimated using a valuation technique. Long Term Investments

21. 4.Investments: 4.1Investment in subsidiary Investment in subsidiary is accounted for at cost fromthe date when control commences until the date when the control ceases. Long Term Investments (Notes to the Accounts)

22. 4.2Investments held to maturity Investments with fixed maturity, where management has both the intent and ability to hold to maturity are classified as held to maturity and are stated at amortised costs. The resultant change in value is reported directly in the profit and loss account Long Term Investments (Notes to the Accounts)

23. 4.3Investments available for sale These are investments, which do not fall under the held for trading or held to maturity categories. These ( except for investments in unlisted securities ) are stated at fair values with any resulting gain / (losses) recognized in equity through statement of changes in equity. The Investments representing unlisted shares are stated at cost as relevant financial information is not available to determine their fair values. Long Term Investments (Notes to the Accounts)

24. 4.4Investments held for trading Investments which are acquired principally for the purpose of generating a profit from short term fluctuations in price or dealer's margins are classified as held for trading. These are stated at fair values with any resulting gain or losses recognised directly in the profit and loss account. Long Term Investments (Notes to the Accounts)

25. Note for graphics (this slide and next 3 slides). This is a portion an Excel file. Please do not draw the gridlines lines used to underline figures and boxes may be drawn in white colour

26. Long Term Investments (Notes to the Accounts)

29. IAS 32 and 39 mainly cover Financial Instruments. Investments that are not covered by IAS 27, 28 and 31 are covered under IAS 32 and 39 as Financial Instruments. Financial Instruments

30. Financial Instrument is an agreement that gives rise to both a Financial Asset of one entity and Financial Liability of another entity. Shares (equity instruments) are Financial Assets of the Investor and Financial Liability of the Investee Company. Other examples could be TFC, Loan Agreements, Trade Receivables / Payables. Financial Instruments

31. Following are specifically excluded from Financial Assets Physical Assets Prepaid Expenses Financial Instruments

32. One of the main purpose of IAS 32 is to provide full and useful disclosure relating to financial instruments. – “The purpose of the disclosures required by this standard is to provide information to enhance understanding of the significance of financial instruments of an entity’s financial position, performance and cash flows and assist in assessing the amounts, timing and certainty of future cash flows associated with those instruments.” Financial Instruments - Disclosure

33. Specific monetary disclosures, narrative commentary by issuers is encouraged by the standard. This will enable users to understand management’s attitude to risk, whatever the current transactions involving financial instruments are at the end of the period. Financial Instruments - Disclosure