COMPARATIVE ANALYSIS CASE
THE COCA-COLA COMPANY and PEPSICO, INC.
(a)
Coca-Cola
PepsiCo
(1)
Cash used in investing activities
$(2,524)
$(5,618)
(2)
Cash used for acquisitions and
investments
$ (977)
$(3,193)
(c) At December 31, 2011, Coca-Cola reported in its Note 3 on Investments
the following:
December 31, 2011
(in millions)
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Trading securities
$211
FINANCIAL STATEMENT ANALYSIS CASE
UNION PLANTERS
(a) While banks are primarily in the business of lending money, they also
need to balance their asset portfolio by investing in other assets. For
(b) Trading securities are shown on the balance sheet at current fair value,
and any unrealized gains and losses resulting from reporting them at
fair value are reported as part of income. Available-for-sale securities
(c) Securities are reported in three different categories because these three
different categories reflect the likelihood that any unrealized gains and
losses will eventually be realized by the company. That is, trading
FINANCIAL STATEMENT ANALYSIS CASE (Continued)
(d) The answer to this involves selling your “winner” stocks in your available–
for-sale portfolio at year-end. Union Planters could have increased
reported net income by $108 million (clearly, a material amount when
total reported income was $224 million). Management chose not to sell
ACCOUNTING, ANALYSIS, AND PRINCIPLES
Accounting
(a) Instar’s investment in Dorsel Corp. bonds should be classified as
held-to-maturity because they have a specific maturity date and Instar
has the intent and ability to hold them until the maturity date.
Instar’s investment of idle cash in equity securities should be
classified as trading.
Instar’s investment in its supplier should be classified as an available–
for-sale security. Instar does not intend to sell it in the short term and
(b)
Fair Value Adjustment (trading) …………………………..
120,000
Unrealized Holding Gain or Loss—Income …..
120,000
(To record the increase in value of the
trading securities, $920,000 – $800,000)
Fair Value Adjustment (available-for-sale) ……………
350,000
Unrealized Holding Gain or Loss—Equity …….
350,000
Loss on Impairment ……………………………………………
150,000
Equity Investments (available-for-sale) ………..
150,000
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
Equity Investments (Slobbaer) …………………………….
75,000
Investment Income ……………………………………..
75,000
Equity Investments (Slobbaer) …………………….
25,000
Analysis
The total effect on net income is $120,000 – $150,000 + $75,000 = $45,000.
Note that the gain on the available-for-sale securities is a component of
Principles
The rationale for reporting held-to-maturity securities at amortized cost is
that if management intends to hold the securities to maturity, fair values
PROFESSIONAL RESEARCH
(a) According to FASB ASC 320–10:
15-5 The guidance in the Investments—Debt and Equity Securities
Topic establishes standards of financial accounting and report-
ing for both of the following:
An equity security has a readily determinable fair value if it meets any
of the following conditions:
a. The fair value of an equity security is readily determinable if sales
prices or bid-and-asked quotations are currently available on a
securities exchange registered with the U.S. Securities and
b. The fair value of an equity security traded only in a foreign market
is readily determinable if that foreign market is of a breadth and
PROFESSIONAL RESEARCH (Continued)
(b) See FASB ASC 320-10–35
35–18 For individual securities classified as either available for sale or
held to maturity, an entity shall determine whether a decline in
35–30 If the fair value of an investment is less than its amortized cost
basis at the balance sheet date of the reporting period for
which impairment is assessed, the impairment is either
(c) See FASB ASC 320-10–25
25–14 Sales of debt securities that meet either of the following
conditions may be considered as maturities for purposes of the
classification of securities and the disclosure requirements
under this Subtopic:
1. The sale of a security occurs near enough to its maturity
date (or call date if exercise of the call is probable) that
2. The sale of a security occurs after the entity has already
collected a substantial portion (at least 85 percent) of the
PROFESSIONAL RESEARCH (Continued)
(d) See FASB ASC 320-10–50
50–10 For any sales of or transfers from securities classified as held–
to-maturity, an entity shall disclose all of the following in the
notes to the financial statements for each period for which the
results of operations are presented:
1. The net carrying amount of the sold or transferred security
2. The net gain or loss in accumulated other comprehensive
PROFESSIONAL SIMULATION
Note: This assignment is available on the Kieso website.
Journal Entries
(a) Debt Investments (available-for-sale) ……………… 187,400*
(b) December 31, 2014
Interest Receivable ………………………………………… 7,750
Interest Revenue ……………………………………….. 7,750**
Measurement
PROFESSIONAL SIMULATION (Continued)
Explanation
If Powerpuff owns 30%, it will use the equity method to account for the
investment. As a result, this investment would not be reported at fair value
IFRS CONCEPTS AND APPLICATION
IFRS17-1
The accounting for investment securities is discussed in IAS 27 (“Consoli–
dated and Separate Financial Statements”), IAS 28 (“Accounting for
Investments in Associates”), IAS 39 (“Financial Instruments: Recognition
and Measurement”), and IFRS 9 (“Financial Instruments”).
IFRS17-2
GAAP classifies investments as trading, available-for-sale (both debt and
Both GAAP and IFRS use the same test to determine whether the equity
method of accounting should be used—that is, significant influence with a
general guide of over 20 percent ownership.
The basis for consolidation under IFRS is control. Under GAAP, a bipolar
approach is used, which is a risk-and-reward model (often referred to as a
While measurement of impairments is similar, GAAP does not permit the
reversal of an impairment charge related to available-for-sale debt and equity
investments. IFRS allows reversals of impairments for held-for-collection
investments.
IFRS17-3
The two criteria for determining the valuation of financial assets are the
IFRS17-4
Only debt investments such as loans and bond investments are valued at
IFRS17-5
Lady Gaga should classify this investment as a trading investment because
IFRS17-6
If Lady Gaga plans to hold the investment to collect interest and receive the
principal at maturity, it should account for this investment at amortized cost.
IFRS17-7
Unrealized holding gains and losses for trading investments should be
IFRS17-8
(a) Under U.S. GAAP, Ramirez makes no entry, because impaired invest–
ments may not be written up if they recover in value.
IFRS17-9
(a) Debt Investments ……………………………………………. 65,118
Cash ……………………………………………………….. 65,118
IFRS17–10
(a) Equity Investments …………………………………………. 13,200
Cash ……………………………………………………….. 13,200
IFRS17–11
(a) Equity Investments …………………………………………. 13,200
Cash ……………………………………………………….. 13,200
IFRS17–12
(a) January 1, 2014
Debt Investments ………………………………………. 537,907.40
(b) Schedule of Interest Revenue and Bond Premium Amortization
12% Bonds Sold to Yield 10%
Date
Cash
Received
Interest
Revenue
Premium
Amortized
Carrying Amount
of Bonds
1/1/14
—
—
—
$537,907.40
12/31/14
$60,000
$53,790.74
$6,209.26
531,698.14
12/31/15
53,169.81
524,867.95
12/31/16
52,486.80
517,354.75
12/31/17
51,735.48
509,090.23
(c) December 31, 2014
Cash ……………………………………………………….… 60,000.00
(d) December 31, 2015
Cash ……………………………………………………….… 60,000.00
IFRS17–13
(a) January 1, 2014
IFRS17-13 (Continued)
(b) December 31, 2014
Cash ……………………………………………………………. 60,000.00
Debt Investments ………………………………….. 6,209.26
Interest Revenue ($537,907.40 X .10) ………. 53,790.74
(c) December 31, 2015
Unrealized Holding Gain or Loss—Income …….. 12,369.81
Fair Value Adjustment …………………………... 12,369.81
Amortized
Cost
Fair Value
Unrealized
Gain (Loss)
Debt investments
$524,867.95
$515,000.00
$ (9,867.95)
Previous fair value
IFRS17–14
(a) December 31, 2014
Unrealized Holding Gain or Loss—Income …….. 1,400
Fair Value Adjustment …………………………... 1,400
(b) During 2015
Cash ……………………………………………………………. 9,500
IFRS17-14 (Continued)
(c) December 31, 2015
Investments
Cost
Fair Value
Unrealized
Gain (Loss)
Stargate Corp. shares
$20,000
$19,300
$ (700)
Vectorman Co. shares
20,000
20,500
500)
IFRS17–15
(a) Contractual cash flow
[($400,000 X .10 X 3) + $400,000] …………………… $520,000
Expected cash flow ………………………………………… (455,000)
Cash flow loss ……………………………………………….. $ 65,000
Recorded investment …………………………………….. $400,000
(b) Loss on Impairment ……………………………………….. 50,001
Debt Investments ……………………………………. 50,001
(c) Since Komissarov will now receive the contractual cash flow ($520,000)
IFRS17-16
(a) According to IAS 39, paragraph AG71, “A financial instrument is
regarded as quoted in an active market if quoted prices are readily
(b) According to IAS 39, paragraph IN22, “The Standard requires that
impairment losses on available-for-sale equity instruments cannot be
reversed through profit or loss, i.e. any subsequent increase in fair
(c) According to IFRS 9, paragraph B4.3,
Although the objective of an entity’s business model may be to hold
financial assets in order to collect contractual cash flows, the entity
1. the financial asset no longer meets the entity’s investment policy
(e.g., the credit rating of the asset declines below that required by
the entity’s investment policy);
IFRS17-17
(a) M&S reports both current and non-current “other financial assets,” along
with both current and non-current derivative financial instruments.
(c) M&S uses derivatives to manage its exposure to fluctuations in interest
rates and exchange rates.