[MEET 5] AKUNTANSI EKUITAS & PELAPORAN KEUANGAN - INVESTASI SEKURITAS EKUITAS

Summary

This lecture on equity securities investment covers accounting methods based on ownership levels. It explains the distinctions between small (<20%), significant (20-50%), and large (>50%) ownership, highlighting how the accounting method varies from fair value to equity method and consolidation. The video also contrasts trading and non-trading investments, clarifying how unrealized gains or losses are handled. By offering clear examples, it guides the audience through understanding how equity securities impact financial reporting, with practical insights into dividend recognition, income adjustments, and consolidation practices in business combinations.

Takeaways

• 😀 Investment in equity securities represents ownership shares such as common stock, preferred stock, and other equity securities.
• 😀 Ownership percentages are categorized into small (less than 20%), medium (20% to 50%), and large (over 50%), influencing accounting methods for each type.
• 😀 Small ownership (less than 20%) involves passive influence, and investments are assessed using the fair value method.
• 😀 Medium ownership (20% to 50%) provides significant influence over the investment, using the equity method for accounting.
• 😀 Large ownership (over 50%) represents control over the invested company, and the consolidation method is used in accounting.
• 😀 For small ownership, both trading and non-trading investments use fair value accounting, with unrealized gains or losses affecting equity components.
• 😀 Non-trading investments report unrealized gains or losses under 'other comprehensive income,' while trading investments recognize them in profit or loss.
• 😀 In the case of medium ownership, equity accounting reflects the proportional share of the investee’s net income or loss, without recognizing unrealized gains or losses.
• 😀 For large ownership, consolidation combines the financials of the parent and subsidiary companies into one entity's report, ignoring unrealized gains or losses.
• 😀 The accounting for equity securities investments varies based on the ownership percentage, impacting how profits, losses, and dividends are reported.
• 😀 Methods such as fair value and equity differ in their recognition of unrealized gains and losses, with the equity method more focused on reporting share of investee’s net income.
• 😀 In cases where investment losses exceed the carrying amount, additional losses may be recognized, and the equity method may no longer be applicable.

Q & A

What is the main topic discussed in the script?

The main topic discussed in the script is 'equity securities investment' and the accounting treatment of such investments based on ownership percentages, ranging from less than 20% to more than 50%.

How are equity securities defined in the script?

Equity securities are defined as securities that represent ownership interest, such as common stock, preferred stock, and other equity securities. They involve rights to acquire or dispose of ownership portions at a predetermined price, such as warrants, rights, and options.

What are the three categories of equity securities ownership discussed?

The three categories of equity securities ownership discussed are: 1) Small ownership (less than 20%), 2) Significant ownership (20% to 50%), and 3) Controlling ownership (more than 50%).

How is small ownership (less than 20%) in equity securities classified and accounted for?

For small ownership (less than 20%), the investor has passive rights and minimal or no influence. The accounting method used is the fair value method, where changes in the market value of the securities are recorded as unrealized gains or losses in the income statement.

What is the equity method of accounting, and when is it used?

The equity method of accounting is used for significant ownership (20% to 50%). In this method, the investor recognizes its share of the investee's profits or losses, and adjusts the carrying value of the investment accordingly. Dividends received reduce the carrying amount of the investment.

How does the consolidated method of accounting work for controlling ownership (more than 50%)?

For controlling ownership (more than 50%), the consolidated method is used, where the parent company combines its financial statements with those of the subsidiary, treating both as a single economic entity. Unrealized gains or losses are not recognized in this method.

What distinguishes the trading and non-trading categories of equity investments for ownership under 20%?

In the trading category, the securities are held for short-term profit from price fluctuations and are marked to market, with unrealized gains or losses recorded in the income statement. In the non-trading category, unrealized gains or losses are recorded in other comprehensive income (OCI) and not in the income statement.

How are dividends treated in the accounting of equity securities?

For equity securities, dividends received are recorded as income. For investments classified as trading, dividends are recognized as part of net income. For non-trading investments, dividends are included in the income statement as 'other comprehensive income'.

What is the treatment of unrealized gains or losses in equity securities for non-trading investments?

For non-trading equity securities, unrealized gains or losses are recognized in 'other comprehensive income' (OCI) and not in the income statement. These are shown as a separate component in shareholders' equity.

What is the procedure for accounting for a sale of equity securities under 20% ownership?

When equity securities under 20% ownership are sold, any realized gains or losses from the sale are recorded. For example, the proceeds from the sale are recorded as cash, and the difference between the carrying value and the sale proceeds is recorded as a gain or loss.