The Accounting Standards Codification (ASC) provides key guidance on accounting treatment and disclosure requirements for investments under US GAAP. Proper accounting for investments in financial statements is crucial for companies to accurately reflect performance. This article will summarize key ASC topics and examples regarding investment accounting.
ASC 320 on accounting for debt and equity investments
ASC 320 provides guidance on accounting for debt and equity investments, excluding those accounted for under the equity method. Key points include:
– Investments in debt securities should be classified as held-to-maturity, trading securities or available-for-sale based on management intent. Different accounting applies for each category.
– Equity investments with readily determinable fair values should be measured at fair value. Gains/losses reported in net income or OCI depending on classification.
– Impairment accounting may be required if fair value declines below cost for extended periods. Write-downs may be necessary.
ASC 320 contains detailed guidance and examples on measurement, impairment, disclosures and other aspects of accounting for investments in debt and equity securities.
ASC 323 on accounting for equity method investments
ASC 323 provides guidance on accounting for investments where the investor has significant influence over the investee, generally when ownership is 20% to 50%. The equity method is applied in these cases. Key aspects include:
– The investment balance is increased/decreased each period by the investor’s share of the investee’s income/loss.
– Investor recognizes its share of investee income/loss in its income statement.
– Investments are subject to impairment if fair value declines below book value for extended periods.
Overall, ASC 323 outlines how to apply equity method accounting and provides detailed examples.
ASC 325 on accounting for cost method investments
ASC 325 sets standards on accounting for investments where the investor has little influence over the investee, usually when ownership is less than 20%. The cost method is applied in these cases. Key details include:
– The investment is recorded at cost at time of acquisition.
– Investment balance remains at cost unless an impairment is recognized. No upward adjustments for investee income.
– Income is only recognized when dividends are received from the investee.
– Fair value is disclosed each period, even though cost method is used for measurement.
ASC 325 provides specifics on applying the cost method with examples.
In summary, ASC provides detailed guidance and examples regarding accounting for various types of investments, including requirements on measurement, impairment, income recognition and disclosures. Proper application of ASC investment topics is essential for accurate financial reporting.