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Helvetia Insurance's Dim Sum Bond Investment
Demers, Elizabeth A.; Yemen, Gerry Case C-2387 / Published September 14, 2016 / 2 pages.
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Product Overview

This case explores the accounting for investments in corporate bonds. The global setting involving a Swiss insurer investing in the Chinese yuan-denominated debt (i.e., "dim sum bonds") of France-based Renault provides significant opportunity for secondary learning. The case can be used with "Dim Sum Bonds at Renault S.A."(UVA-C-2373), which involves the accounting for bonds payable from the perspective of the issuer. The accounting for Helvetia's investments in this case could be undertaken from the perspective of US GAAP or IFRS, and assignment questions could be tailored to explore the accounting for these instruments as, alternatively, held-to-maturity investments, securities that are held-for-sale, or trading securities. The suggested questions to accompany the case require students to record the purchase of corporate bonds acquired at a premium to their face value, the receipt of interest payments, the recording of periodic interest revenue together with the associated amortization of the bond premium, as well as to address the issues of changing market values and a sale of the investment before the maturity of the bonds.

Learning Objectives

Introduction to the concepts underlying the accounting for, and transaction entries related to, bond investments, including the purchase of a bond when it is trading at a premium to its face value, the receipt of coupons, and the recording of periodic interest revenue together with the associated amortization of the bond premium; Optional assignment questions enable the instructor to explore the issue of whether and how post-acquisition market value changes are reflected in the financial statements, and/or how the accounting for the bond investment would differ as a function of management's intent with respect to the holding of the bond investment (i.e., depending upon the instrument's classification as either a held-to-maturity investment, a security that is available-for-sale, or a trading security); An introduction to the concept of, and market for, dim sum bonds; Exposure to the economics and investment strategies of insurance companies.

  • Overview

    This case explores the accounting for investments in corporate bonds. The global setting involving a Swiss insurer investing in the Chinese yuan-denominated debt (i.e., "dim sum bonds") of France-based Renault provides significant opportunity for secondary learning. The case can be used with "Dim Sum Bonds at Renault S.A."(UVA-C-2373), which involves the accounting for bonds payable from the perspective of the issuer. The accounting for Helvetia's investments in this case could be undertaken from the perspective of US GAAP or IFRS, and assignment questions could be tailored to explore the accounting for these instruments as, alternatively, held-to-maturity investments, securities that are held-for-sale, or trading securities. The suggested questions to accompany the case require students to record the purchase of corporate bonds acquired at a premium to their face value, the receipt of interest payments, the recording of periodic interest revenue together with the associated amortization of the bond premium, as well as to address the issues of changing market values and a sale of the investment before the maturity of the bonds.

  • Learning Objectives

    Learning Objectives

    Introduction to the concepts underlying the accounting for, and transaction entries related to, bond investments, including the purchase of a bond when it is trading at a premium to its face value, the receipt of coupons, and the recording of periodic interest revenue together with the associated amortization of the bond premium; Optional assignment questions enable the instructor to explore the issue of whether and how post-acquisition market value changes are reflected in the financial statements, and/or how the accounting for the bond investment would differ as a function of management's intent with respect to the holding of the bond investment (i.e., depending upon the instrument's classification as either a held-to-maturity investment, a security that is available-for-sale, or a trading security); An introduction to the concept of, and market for, dim sum bonds; Exposure to the economics and investment strategies of insurance companies.