This module covers investments and long-term receivables. It is important
for a company to consider not only how it will meet its short-term
obligations but also how it will manage its long-term cash flow strategically.
For example, a company may invest in a supplier or other business by
purchasing shares to have control over both products and supply-and-
distribution channels.
When managing long-term assets, companies should consider fair value
versus cost. IFRS defines fair value 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 (exit price)” (IFRS, 2017).
Stakeholders will be interested in this information for evaluating the
company’s investment strategies, considering that value can change quickly.
A good fair value measurement versus the cost of an investment speaks to
the company’s flexibility and ability to manage assets efficiently.
Another consideration for managing long-term assets is whether the
company holds investment securities to maturity. Management’s intent can
drive the accounting treatment of these securities. For example, if a
company needs money quickly to meet its short-term obligations, it may opt
to sell, when holding a security to maturity will require amortization of bond
premium or discount.
References
Whalen, J. M., Jones, J. P., & Pagach, D. P. (2017). Intermediate accounting: Reporting
and analysis. Boston, MA: Cengage Learning.
IFRS. (2017). IFRS 13 fair value measurement. Retrieved from
http://www.ifrs.org/issued-standards/list-of-standards/ifrs-13-fair-value-
measurement/
