The mock 1 pdf solution to question 15 says “marketable securities where the company does not have the ability to exercise significant influence or control” The question I remember was asking to compute mark to market portfolio return. I don’t get why those with more than 30% ownership are not included. Can anyone did the test explain it to me?
i’ll share my thoughts here… Share more than 20% should be counted for by equity method. The question here is for 30% ownership, and with out any additional info, I believe that if they are asking you to compute mark to market then you stick to cost method. Moreover, where the company does not have the ability to exercise significant influence or control the equity ownership doesn’t matter. Comments, Anish
Thanks for your help, anishcandy. I don’t remember seeing cost method is for mark to market in the text book. I’ll go over a similar question in schweser practice exam after work.
Yes, you should confirm it with your books. Anish
Anish, Please help me to understand better. Suppose A has 30% ownership in B but doesn’t have influence, should we take available for sale if it is publicly traded and cost method if it is not publicly traded? Suppose A has 75% ownership in B but lost control, should we consider under equity method or market method if it is publicly traded? How about if B is not publicly tarded? If A has ownership of 30% in B, which is not publicly traded, should we take cost method if question says strictly under SFAS 115? We should not do mark to market retun method for equity unless the question specifically asked for it, correct? Thanks
if you don’t mind, can you let me know where can I find this question? is it in notes or ?
It’s question from cfai mock 1 exam
thanks…
that’s why I cannot find it…
tom18606 Wrote: ------------------------------------------------------- > Anish, > > Please help me to understand better. > > Suppose A has 30% ownership in B but doesn’t have > influence, should we take available for sale if it > is publicly traded and cost method if it is not > publicly traded? > > Suppose A has 75% ownership in B but lost control, > should we consider under equity method or market > method if it is publicly traded? How about if B is > not publicly tarded? > > If A has ownership of 30% in B, which is not > publicly traded, should we take cost method if > question says strictly under SFAS 115? > > We should not do mark to market retun method for > equity unless the question specifically asked for > it, correct? > > Thanks If am interpreting your questions right then I think you are mixing up valuing securties and the ownership rules used to value an investment in another firm!! … You need those cut offs ( <20, 20- 50, >50) for valuing your investment. For valuing securities just take what is given as per the classification - trading (market value), held-to-maturity (cost),or marketable (market value). Let me know if it makes it clear. Anish
Thanks I got that part. It’s the GAAP classification. Suppose A has investment in B at 55%, but no control and no public market, what should we use?
^ then it would be a passive investment
mean cost method?
then it would depend on the type of investment: trading security, available for sale, or held to maturity. Each one has a different way of accounting for it in the B/S and I/S.
> > You need those cut offs ( <20, 20- 50, >50) for > valuing your investment. For valuing securities > just take what is given as per the classification > - trading (market value), held-to-maturity > (cost),or marketable (market value). > > Let me know if it makes it clear. > > Anish All of a sudden I’m confused with this simple concept!!! The term Marketable securities refers to trading securities or available-for-sale?? or both? I know both are reflected on BS at market value, but I thought the term was used for just trading securities…
so referring so that mock question, if you have significant control over that firm, you use consolidation method, and you put the % of their earnings that you own through your NI statment, BUT not the dividends? and if you dont have control, you ONLY put the dividends through NI? seems wrong… but thats what the cfai mock answer sheet is saying