# Help! FSA Practice Problem reading 21 page 58, Q1

Has anyone worked through this problem please? Part A (II) I thoughtI understood the classification but this question confused me!!! I thought Company Y is treated as equity and so the unrealised gain and losses go to shareholders equity! Can someone clarify please? In appendix A only the unrealised gain or loss for company X and Z is being calculated. Is this because they are marketable securities thus available for Sale? Thank you

ok Is it because with Equity it is a one line? and so we do not take the unrealised gain or loss?

Any help with this one please?

which book are u referring to?? CFAI or Schweser?

Sorry i thought i listed the book. CFA volume 2 Thanks

Thats because X and Z are deemed to be Marketable Available for Sale securities (as OP < 20%). While Y is having 40% stake and so uses Equity Method.

Firm Y ownership is 40% so it will be classified as equity and not as marketable security Unrealized Gains and Losses = change in Market value adjustment Market value adjustment = Market price - cost price on 12/31/2000 100,000 shares of X was purchased at \$50 and is now worth only \$49 = so a market value adjustment of -ve 100,000 similiarly for Y do the same for 2001. The change in market value adjustment = 650,000 - ( -100,000 ) = \$750,000.

for Equity ownership, changes in market value of the equity is not reflected in the parents’ income statement, unless the decline is permanent.

And under the Equity method there is no unrealised gain or loss (i.e change in Market Value adjustment) Right because we the investment is carried at cost and adjusted for the retained earnings less any dividends paid… The change in market value is only calculated to come up with the total return ( for the investor purposes) but strictly speaking this should not be calculated in the case of equity ?

<> yes… <> we do not calculate change in market value for equity.

Thank you so much.