BU387 Lecture Notes - Lecture 9: Accrued Interest, Transaction Cost, Equity Method
Document Summary
Companies hold investments for one of two reasons: to have the capital appreciate, to earn dividends and/or income. Two main types of investments: debt instruments have contractual cash flows including principal and interest, e. g. bonds, equity instruments represent ownership interests, eg. common or preferred stocks. Companies may buy equity instruments so they can have special relationship with a supplier or customer, and being able to access certain distribution channels or supply of raw material. Unrealized holding gains or losses changes in the fair value, e. g. the difference between the fair value and the cost of an asset still held by the investor. Costs model - (equity investments, e. g. shares: 1. ) Amortized cost model debt investments and long term notes/loans receivable: 1. ) Cost = fv of the debt instrument acquired plus the transaction costs: 2. ) Ifrs: requires effective interest method and aspe: allows straight line interest method: can be received in two ways: interesting bearing and non interest bearing.
