Professor Elam

Chapter 12 deals with ways of classifying investments. There are two ways of looking at this.

The first point of view is What do you own?  This leads to the classes of

Held to Maturity – Debt

versus the two equity categories of

Available for Sale  AFS

versus

Trading Securities TS

Both are marked to value at the end of the reporting period. AFS takes the difference to Other Comprehensive Income OCI, TS takes the difference to actual Net Income NI. So the differences in TS affect your earnings per share.

The second point of view might be expressed as not what but HOW much do you own?

If you own less than 20%, we will report dividends as dividends.

If you own 20-50% you are said to exercise significant influence, we use the equity method. Income gains or losses are recroded as our own gains and losses. Dividends are recorded as a decrease in the value of the investment carried on the books.