The Debt And Equity Securities

Fair-value measurement and presentation of an entity’s assets and liabilities result in increasing relevancy of financial statements information, so that readers of the financial statements will not have to make complex adjustments in analyzing the entity. Furthermore, the fair-value

The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that

One major criticism of the equity method is that the method does not consider market values. As of now the equity method uses book value which is based on original cost plus a portion of the investee’s adjusted income minus dividends cite?. The equity method’s book value

NPV: If NPV>0, accept the project [which are expected to add value to the firm], otherwise don’t bother.

The management is required to make judgments regarding uncertain issues on some of the critical accounting estimates and policies applied in the preparation of annual reports. Examples of the critical accounting estimates and policies include the revenue recognition principle, inventory valuation methods, measurement of legal and other contingencies, and valuation and impairment of short-term and long-term marketable

Baruch Lev and Feng Gu authors of “The End of Accounting and The Path Forward for Investors and Managers” indicate that over the past 110 years, the structure and content of financial reports has not changed, and that the role that these reports play in influencing the decisions of investors has greatly diminished. Lev and Gu make a case that non-transaction events that are not captured by the financial reports such as those disclosed through 8-k filings with the Securities and Exchange Commission (“SEC”) have a greater impact on stock prices, and thus more useful to investors. In addition, they suggest that one of reasons for the decline in usefulness of financial reports stems from the increase of estimates that has made its way into these reports (Lev and Gu 2016).

There has been much debate over whether FAS 157 sparked the economic crisis or whether big companies, such as financial institutions, only want to use mark to market when it suits them. (Did an Accounting Rule Fuel a Financial Crisis 2008). Critics say fair value can distort market realities, but proponents argue it actually creates transparency by reflecting the up to date reality of an asset or liabilities' worth. (Johnson 2008). Many companies have had to write down assets causing huge losses in their financial statements at a time of economic crisis. Some of these companies blame the fair value measurement on the economic crisis and are lobbying in Washington to change the rule.

The fair value of an asset is defined as ‘the price that would be received to sell an asset paid to transfer a liability in an orderly transaction between market participants at the measurement date” (Kieso, Weygandt, & Warfield, 2012). It is a market based measure (Averkamp, 2014). Over the past few years, Generally Accepted Accounting Principles has called for the use of fair value measurement in a company’s financial statements. This is what is referred to as the fair value principle (Kieso, Weygandt, & Warfield, 2012). The fair value of an asset or liability is based on an estimate of what the asset should be worth at the time of sale. This gives rise to some conflict among accounting professionals. It is believed that fair value may not be as accurate

I am working with our ABC client, and I wanted to let you know the issue regarding their Available-for-sale equity securities. For the second consecutive quarter, the client has been recording a decline in market value for several of their securities in “other comprehensive income”. The securities’ fair value are now below their cost. The issue with this situation is to determine if the securities are considered impaired, and if such impairment is considered “other than temporary”, in which case the company would have to account for the loss in a different way.

The information reflected in the financial statements actually is expected to be of high quality and useful to support the quality decision-making of market stakeholders due to the far-reaching and very costly consequences. It is important in this context to properly identify and discuss the user needs and thereby we refer to the actual requirements of all information users amongst them the management, which uses the financial information to steer, regulate and co-ordinate the business.

It is reasonable to say that fair value of reporting units have fallen significantly in pace with market capitalization, and it has possibly fallen below book value of the reporting units. Therefore, above analysis raises substantial doubt on management’s action to carry forward the 09 fair values of Fitness and Hockey. They should not carry forward the previous fair value estimates and should revalue Fitness and Hockey for 2010.

The purpose of this memo is to respond to prompts regarding fair value accounting using the 2012 10-K report of JPMorgan Chase. According to ASC 820-10-35-2, fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” (FASB, 820-10-35-2). Fair value measurement is recommended for some assets and liabilities reported.

With the existence of inaccurate information and unobservable factors, intrinsic values are too hard to measure in practice. While blue line has invisible feature, it is human nature to desire to measure things, to rely on what is tangible and real. Therefore, many entities set quantifiable goals, or key performance indicators (KPIs) for comfort. For example, the share price is widely used to evaluate entity performance. Unfortunately, this strategy tends to have the opposite effect. Price is the negotiated amount for transferring an asset. It stands for market peoples’ general estimate of the value. Although these estimates can be reasonable sometime, it can never be used to substitute the true intrinsic value. Besides, when an observable indicator is set as the criteria, executives are allured to manage the indicator at the expense of destroying value, falling into the curse of the red line. However, this does not mean that KPIs are worthless. A blue line company uses KPIs as

With the shares vesting in the future, Blackstone expected to face deferred cost approximated $13 billion. It may record significant net losses for a number of years following without paying any interests or dividends hereafter. As a result, Blackstone developed a metric called “economic net income,” which excluded the impact of income taxes, noncash charges related to the vesting of equity-based compensation, and amortization of intangible assets. By using the economic net income metric, the Blackstone‘s executive team argued that this metric was justified, as the future noncash charges reflected an extraordinary situation, incurred only because of the one-time event of the firm’s listing. Moreover, the stream of income against which these expenses would be offset was uncertain but highly likely to be more than enough to cover these costs. Furthermore, the management team also thought that this $13 billion expenses was based on the extreme assumption that all the employees would not leave their jobs in the coming eight years. If they left the firm before their vesting

In the financial markets, the most common forms of marketable securities are stocks and bonds. Though they have some similarities to each other, they differ greatly in many aspects. Broadly speaking, both financial instruments enable one to invest in corporations, public and/or private, with possible profitable returns in the future.