No significant influence: Treat as amortized cost, fair value through P&L, or fair value through OCI.
Significant influence: Requires using the equity method.
Control: Consolidate with full or partial goodwill methods.
Course Objectives: Become experts in intercorporate investment accounting.
Exam Preparation Tips
Work Smart, Not Just Hard: Importance of strategic studying.
Familiarity with Topics: Expect challenging material, especially in ethics and derivatives.
High-Risk Topics:
Ethics: High-stakes questions, easier concepts but tricky to apply.
Accounting: Derivatives and financial instruments take time to master.
Accounting for Debt Securities
Held to Maturity Classification:
Investment: Report at amortized cost on the balance sheet without marking to market.
Income Statement: Report interest income; no unrealized gains/losses.
Investment Example:
Invested in Swiss Landing Company: Paid $150,000 for securities with a face value of $160,000.
Realized and unrealized definitions, specifics of reporting unrealized gains/losses.
Journal Entries: Understanding cash flow outcomes depending on purchase method.
Equity Method of Accounting
Criteria for Using Equity Method: Ownership of 20%-50% indicates significant influence.
Calculation of Equity Income:
Starting from initial investment, adjusting for net income, excess depreciation, and dividends.
Emphasis on tracing changes in equity value on income statements versus cash flows.
Goodwill Calculation
Acquisition Method: Needed for consolidation accounting.
Calculating goodwill: Purchase price, fair market value of identifiable equity, and recognizing assets and liabilities.
Full vs Partial Goodwill:
Important distinctions and methods under different accounting principles (US GAAP vs. IFRS).
Key Takeaways and Best Practices
Learning by Doing: Engaging in practice questions to solidify concepts.
Review Sessions: Importance of scheduled interactions and addressing challenging topics.
Holistic Understanding: Integrating knowledge from various topics (equity, derivatives, and financial statements).
Discount and Enrollment Offers
Discounted Rate: 25% off enrollment for attendees.
Reflection on the Course: Suggestions for providing testimonials on the course to aid in marketing.
Closing Remarks
Included Encouragement for Participation: Stay engaged, ask questions, and provide feedback.
Future Sessions: Importance of attending live group classes for real-time interaction and learning.
Final Thoughts
It's a detailed session aimed at preparing candidates for CFA Level 2 with an emphasis on real-world application of accounting principles within the context of the CFA curriculum.