馃攳
9 - Intent-Based Accounting - YouTube
Channel: unknown
[1]
[Music]
[5]
I'm Larry Walter this is principles of
[8]
accounting comm chapter nine this is the
[11]
first module in Chapter nine and it
[13]
speaks to the influence of intent on
[15]
determining how to account for long term
[17]
investments so first of all recall from
[19]
an earlier chapter trading securities
[21]
those were investments that were made
[23]
with the intent of buying and selling
[25]
and the very near term with the goal
[27]
primarily of making a profit on the
[28]
trade and those were classified on the
[31]
balance sheet as current assets adjusted
[35]
to fair value at each financial
[36]
statement date and the changes in value
[39]
were reported and captured in the income
[41]
statement for each periods change in
[43]
value not all investments are acquired
[46]
with the intent of trading for a quick
[47]
profit however and that drives the
[50]
accounting considerations the accounting
[52]
is going to be dependent upon the intent
[54]
and nature of the investment the company
[57]
might make an investment with the intent
[59]
of acquiring control over another
[61]
company now that usually happens when a
[63]
company buys more than 50% of the stock
[65]
of another company with the intent of
[66]
holding it on a continuing basis in that
[70]
case the acquire must consolidate all of
[72]
the accounts of the subsidiary into the
[74]
acquirers books is termed consolidation
[77]
it's the subject of a subsequent module
[78]
in this chapter a company might simply
[82]
acquire a substantial amount of the
[83]
stock of another company however without
[85]
obtaining control usually happens when a
[88]
company buys twenty to fifty percent of
[90]
the stock of another company investors
[93]
thereby
[93]
deem of significant influence over the
[95]
investing now in that case the investor
[99]
is going to use the equity method of
[101]
accounting that we'll look at in a
[102]
subsequent module
[105]
company made by a bond type investment a
[107]
promise from another company to repay
[109]
cash over time the issue of a bond
[111]
payable receives money today from an
[113]
investor in exchange for a promise to
[116]
repay that money in the future and it
[117]
includes accrued interest it's really
[119]
just debt
[121]
Bester's usually acquire those
[123]
investments with the intent of holding
[125]
them to maturity to collect the interest
[127]
and the principal at maturity and that
[128]
requires another method to the amortized
[131]
cost approach of accounting finally
[134]
anything that doesn't meet one of these
[136]
other categories like trading or held to
[139]
maturity or equity method or
[140]
consolidation those are accounted for as
[143]
available-for-sale securities so you see
[145]
we're growing a fairly complicated
[146]
scenario the review here trading
[149]
securities are those investments that we
[151]
have bought with the intent to buy and
[152]
sell for short-term profits the basic
[155]
accounting approach is fair value
[156]
accounting and gains and losses are
[158]
recognized in operating income in
[161]
contrast available-for-sale securities
[163]
it's the default category it's carried
[166]
at fair value on the balance sheet gains
[168]
and losses are recognized but two unique
[170]
other comprehensive income account that
[173]
will be exposed to held to maturity
[175]
securities those were we buy a security
[178]
that has a fixed future maturity date
[180]
and our goal is to hold it to that
[181]
maturity date typically accounted for by
[183]
the amortized cost method the equity
[186]
method is appropriate for those
[187]
investments where we have the ability to
[189]
exercise significant influence generally
[191]
twenty to fifty percent ownership but
[193]
that's not absolutely the real test is
[195]
significant influence and lastly if we
[197]
buy the stock of another company with
[199]
the intent of controlling them we'll
[201]
then consolidate that particular
[203]
scenario these approaches apply to
[205]
investments that continue to be held
[207]
when any type of investment is sold the
[210]
realized gain or loss is then measured
[211]
and included in operating income so
[213]
these accounting method are sort of
[215]
overridden at the point of sale any gain
[217]
or loss is reported in income when the
[218]
investments actually sold companies do
[221]
have a fair value option that that
[223]
overrides this entire structure
[224]
companies may elect to use fair value
[227]
accounting for financial assets and
[229]
financial liabilities so this could be
[232]
applicable to available for sale type
[233]
securities held the maturity investments
[236]
any of those can instead be measured at
[238]
fair value the change in value the gains
[240]
and losses as they accrue would be
[242]
recognized in earnings this is very
[244]
similar to the approach that's used for
[246]
trading securities that you've seen from
[248]
an earlier chapter if a company elects
[251]
to apply the fair value option to a
[253]
take your investment that decision is
[255]
irrevocable you'll be using that method
[257]
going forward from that date
Most Recent Videos:
You can go back to the homepage right here: Homepage