Accounting for Investments (Equity and Debt Securities)

This video provides an overview of the accounting rules and classifications for different types of investments. Investments can be broadly grouped into two types: debt investments and equity investments. Debt investments can be held-to-maturity (presented on the Balance Sheet at amortized cost, with changes in fair value not affecting Net Income), available-for-sale (presented on the Balance Sheet at fair value, with unrealized gains or losses bypassing the Income Statement and flowing through Other Comprehensive Income), or Trading (presented on the Balance Sheet at fair value, with unrealized gains or losses affecting Net Income. Equity investments are treated as Trading Securities according to the Fair Value Method (if the investor owns less than 20% of the investee), which marks the investment to market on the Balance Sheet and has unrealized gains or losses flow through Net Income. There is a practicability exception, however: if the fair value cannot be determined, the investment is presented on the Balance Sheet at cost, minus any impairments. If the investor owns between 20% and 50% of the investee the Equity Method is used; with this method, the investor does not recognize dividend revenue but instead recognizes a proportionate share of the investee's Net Income. If the investor owns more than 50% of the investee, the investor must consolidate the investee (the two entities are treated as one consolidated entity).-
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[@enriquebn4853]

I've been cruising along through Accounting 2 until this came up. It's like a brick wall to me. Thank you so much for explaining this so much better than my book.

[@eisenhoward1]

Thank you so much. I've read my accounting book twice and just now after watching your video, do I truly understand it. Thank you!

[@douglasjimenez356]

Thank this presentation will be very helpful for my presentation!!

[@candidacain2513]

Thank you, thank you, thank you. I was so confused about these new rules!

[@Edspira]

No problem!

[@anthonysebastianletonavald6614]

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[@MyFinancialFocus]

Great explanation of investments

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[@Edspira]

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[@budakamerika]

why for trading, the unrealized gain/loss go to net income? any explanation why it different?

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[@Edspira]

No problem!

[@jeremyksiazka270]

Could you make Intermediate, and Tax videos in a course-like playlist that would go in order, so it flows nicely? It would make it easier to study chapter by chapter.

[@Edspira]

Jeremy, I'm working on getting more tax videos up so that the topic is more complete. When I get the videos made, I'll definitely put them all together in a playlist. Thanks for the suggestion!

[@manwang7421]

A good lecture! What about the transaction fees incurred during those different kind of financial investments? Should they be capitalized or expensed? I know that transaction fees for M&A should be expensed at the period while they incurred. What about the rest of those financial investments?

[@Amr_D]

Usually capitalised based on the life of the loan or a year. Depending on the strategy of the investment managers really. I've done both

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[@angelynewa2143]

May I ask accounting question regarding investment? when should I recognise investment in associates and subsidiaries? At the time of acquisition? Or issuance of share certificates? Or otherwise?

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[@enrikmsuhr]

what if the company is dedicated to buy and sell debt investments and equity investments, like an investing company, Should the gains go Through OCI or operational revenue?

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