Foreign Currency Transaction Exposure: Accounting for and Disclosures

Foreign currency transaction exposure is the risk of the exchange rate fluctuating before the payment obligation is fulfilled. If the foreign currency rises in value, it costs more in a company’s home currency. If a company imports or sells goods…

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Components of a Company’s Defined Pension Costs

The periodic pension cost of a company’s defined benefit plan is the change in the net pension liability or asset adjusted for the employer’s contributions. The following make up a company’s defined pension costs: 1. Service Costs Current service cost…

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Measures of a Defined Benefit Pension Obligation

The pension obligation is measured as the present value of future benefits that employees earn for services provided under both IFRS and US GAAP. It is denoted as the present value of defined benefit obligation (PVDBO) under IFRS and projected…

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Types of Post-employment Benefit Plans and Implications for Financial Reports

A company may offer its employees different types of benefits upon retirement. These may include pension plans, medical insurance, health care plans, and life insurance. The company may make assumptions required to estimate and recognize future benefits. These assumptions introduce…

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Classification, Measurement, and Disclosure under International Financial Reporting Standards (IFRS) for Intercorporate Investments

Intercorporate investments are investments in the debt and equity securities of other companies. Companies invest in other companies to: Diversify their asset base. Increase profitability. Enter new markets. Gain competitive advantage. Deploy excess cash. An example of an intercorporate investment…

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Effect of Different Accounting Methods for Intercorporate Investments on the Financial Statements

Equity Method The equity method of accounting provides a more objective basis for reporting investment income. The investor is required to recognize income as earned rather than when dividends are received. Thus, an equity investment is reported as a single…

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Comparison between IFRS 17 and US GAAP

Fair Value Option A fair value option is an option to recognize an equity method investment at fair value at the time of initial recognition. Under IFRS, the fair value option is only available to venture capitalists and unit trusts….

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Projections Beyond the Short-term Forecast Horizon
After forecasting for the forecast period, analysts estimate the terminal value based on long-term projections. When using the historical multiples-based approach to estimate the terminal value of a company, the analyst assumes that the past is a good reflection of...
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The Forecast Time Horizon
The forecast time horizon is influenced by the following: The investment strategy being considered: Professionally managed equity investments have an investment timeframe or the average holding period for a stock, corresponding with the average annual portfolio turnover. The cyclicality of...
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Effects of Technological Developments on Demand, Selling Prices, Costs, and Margins
Businesses and industries are affected by technological developments. It is, however, impossible to quantify these impacts without making assumptions about the future. These assumptions should be evaluated using scenario and sensitivity analysis to develop a range of earnings outcomes. There...
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