Question

E1.14 Impairment of AFS and HTM Investments, U.S. GAAP and IFRS Assume The Coca-Cola Lo1,4 Company reports the following investments at December 31, 2016. prior to any required end-of-year valuation adjustments: Investment in debt securities. 600,000 Coca-Cola classifies its investment in cquity securitics as AFS, and its investment in debt securities as HTM. The December 31,2016, fair value of the equity securities is $1,000,000, and the fair value of the debt securities is $400,000. Required The equity securities were originally purchased for $1,600.000. a. Record any required journal entries to reflect fair values at year-end, assuming the investments are b. If Coca-Cola follows IFRS, are there any differences in how the value changes are recorded? Are c. It is now December 31, 2017. Coca-Cola still holds both investments. The fair value of the equity (1) not impaired, and (2) impaired, following U.S. GAAP there differences in the decision to treat an investment as impaired? Explain. securities is $1,400,000 and the fair value of the debt securities i basis, the debt securities balance would be $590,000 if no impairment loss had s $640,000. On an amortized cos y required journal entries at year-end, following (1) U.s. GAAP, and (2) IFRS, assumingt securities were impaired in 2016.

Answer 1

As per the policy, since the answer to the which question is required is not mentioned, I have answered the first part of the question only. Acronym used in the answer AFS – Available for sale and HTM – Held to maturity.

a. Equity – AFS

All HTM securities are recorded or valued at balance sheet date at Fair Value.

Journal Entry -

Loss on AFS Securities DR $500,000

To Investment in Equity Securities CR $500,000

b. Debt – HTM

Fair value is $400,000 and Book value is $600,000. All HTM securities are recorded or valued at balance sheet date at amortised cost.

Amortised cost = (Original Price) – (principal payment) + (amortized discount) – (amortized premium) – (impairment loss)

In the given case, since other details are not shared in the question, we can safely assume the fair value as amortised cost.

Journal Entry

Loss on HTM securities DR $200,000

To Investment in Debt Securities CR $200,000