Joined: 02 Feb 2010
Online Status: Offline Posts: 125
Posted: 15 Apr 2010 at 10:47 | IP Logged
In Year One, an investor buys shares of Company X for $6,000 and shares of Company Y for $11,000. By the end of that year, each of these investments has increased in value by $2,000. During Year Two, the shares of Company X are sold for $10,100. If these investments are viewed as available for sale securities, what income is recognized by the investor in its income statement as a result of this sale? The fair value option was chosen by the investor.
Joined: 11 Jun 2009
Online Status: Offline Posts: 987
Posted: 15 Apr 2010 at 12:10 | IP Logged
If the fair value option is chosen, then the rules of SFAS 159 are applied. If the fair value option is not chosen, then SFAS 115 applies (I haven't yet gotten familiar with the numbers in the FASB Codification).
If the fair value option is chosen, it means that the asset/liability is revalued to fair value at each B/S date with changes flowing through the income statement; the trading/AFS/held-to-maturity classifications no longer determine the accounting. It's an irrevocable election.
Joined: 27 Mar 2010
Online Status: Offline Posts: 152
Posted: 15 Apr 2010 at 12:44 | IP Logged
FVO used on AFS securities are treated the same way as Trading Securities.
Unrealized Gain/Loss on AFS Securities (no FVO election) are recognized in OCI. On Date of disposition/sale, Realized Gain/Loss = difference b/t CV and Proceeds.
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Topic: Available for sale secuirity
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