A very successful IT company has accumulated a large amount of excess liquidity. This is...
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A very successful IT company has accumulated a large amount of excess liquidity. This is invested in a mix of financial assets. At any time, the company can use this liquidity for purposes such as business combinations, strategic investment initiatives, or share buy-backs. For relatively small amounts, the company will use the ongoing cash inflow from interest, dividends and maturing of instruments. If larger amounts are required the company will sell some of its financial assets. The companys main business is to provide a range of IT services to businesses and consumers. Discuss for each of the following financial instruments in the companys portfolio whether they can (or must) be measured at fair value through profit or loss, fair value through OCI, or at amortized cost.
a. Ordinary shares in listed companies. b. 30-year government bonds. c. Corporate convertible bonds d. Preferred shares in another company; the shares pay a fixed dividend when this company makes sufficient profit; in case of liquidation of the company,the holders will be paid the nominal amount of the shares.
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