CFAI Mock 1 Problem #17

Did anyone else struggle with this question? It asked if a security is transferred from being classified as equity to avail-for-sale what would be the effects? The answer says that the book value per share could decrease because equity will not be increased by the parent’s share of the company’s income in excess of dividends? Yet if you move to aval for sale, don’t you have to mark up the equity investment to the current market value???

I dont know the question - but from what you have typed out, this is what I can think of… it is only for movements in between avlble for sale, HTM, trading etc that investments may be required to be marked up for sale. once we remove the investment from equity classification we can no longer add the NI from the equity investment to our asset account. This will bring down Book value and thus BVPS. for avble for sale, we add only the dividend component to the income stmt - which is definitely lesser than adding NI from the equity investment to the balance sheet. also we do not mark up the equity investment to current value. We hold the equity investment at “accrued value” - which is original inv + share of NI - share of Div. hope this helps.