1. Prepared by: Gabriela H. Schneider, CMA; Grant MacEwan College INTERMEDIATE ACCOUNTING INTERMEDIATE ACCOUNTING Sixth Canadian Edition KIESO, WEYGANDT, WARFIELD, IRVINE, SILVESTER, YOUNG, WIECEK

2. C H A P T E R 10 Appendix 10A Special Issues Related to Investments

3. Learning Objectives 1.Discuss the special issues that relate to accounting for investments.

4. Special Issues 1.Dividends received in shares 2.Stock rights 3.Cash surrender value of life insurance 4.Accounting for funds

5. Dividends Received in Shares Dividends received as shares are not revenue to the recipient –Recipient’s interest (percentage ownership) has not changed –No assets have been distributed Memorandum entry should be made to record receipt of additional shares Carrying amount per share is recalculated when shares are sold

6. Dividends Received as Shares Recalculation of Carrying Value: Cost of shares originally purchased Total number of shares currently held Any gain or loss is calculated based on the above recalculation.

7. Stock Rights Stock Rights: rights to purchase additional shares, at a reduced (subscription) price Important dates related to stock rights 1.Announcement date 2.Issue date 3.Expiry date Stock rights may be: 1.exercised 2.sold 3.allowed to expire

8. Stock Rights: Example Given: Shares owned before issuance of rights –100 Cost of shares owned - $50.00 per share Rights –1 right received for each share –2 rights required + $50 to acquire a new share Market value on rights issue date –Shares $60.00 –Rights $3.00

9. Stock Rights: Example Market value of shares and rights currently held 100 X $60.00=$6,000 shares 100 X $ 3.00= 300 rights $6,300 Allocation of original cost to shares and rights currently held Shares: $6,000  $6,300 X $5,000 = $4,761.90 Rights: $ 300  $6,300 X $5,000 = 238.10 $5,000.00 Per share and right cost Shares: $4,761.90/100 = $47.62 Rights: $238.10/100 = $ 2.38 If shares or rights are sold, the above unit costs are used to calculate any gain or loss.

10. Cash Surrender Value of Life Insurance If the company is beneficiary and has the right to cancel the policy, any cash surrender value attached to the policy is an asset of the company Portion of these premiums is not an expense; treated as Other Asset Any ‘gain’ received on this policy from a claim treated as other income

11. Accounting for Funds Assets set aside by the company for a specific purpose –Not available for ordinary business operations Separate account set up in the books or record to track each special fund Fund vs. Reserve (Appropriation) –Fund: Always an asset Always has a debit balance –Reserve (Appropriation of Retained Earnings): Never an asset Always has a credit balance

12. Accounting for Funds Two types of funds 1.Funds to meet specific current obligations –Petty cash fund –Payroll account –Dividend account –Interest fund 2.Funds not related to operations (but still set up for a specific purpose), qualify as a long-term investment –Sinking fund –Plant expansion fund –Share redemption fund –Contingency fund

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