Q: can equity security investment in financial asset ever be write up after write-down? either the stock investment is classified as for trading or available for sale, in GAAP or in IFRS? This is related to Schewesser concept checkers for FRA test 5 on page 33. the answer allows write-up. My understanding is that for equity investment, no write-up is allowed to account the carrying value. Thanks.
it is afs or hft security. so it is reported on the balance sheet at the current fair market value, and unrealized gains / losses are reported. in hft -> unrealized g/l goes to the Income statement. in afs -> unrealized g/l goes to the oci section of the equity section of balance sheet. so the writeup / writedown is related to the fair market value of investment, and that is allowed, whether it be IFRS or GAAP. Do not see anything wrong with what has been written.
It is asking carrying value at t=2. I think the carrying value may be different from the fair value reported on balance sheet. At t=1, the carrying value was written down as a result of impairment, so the t=1 fair value become the new carrying value for t=2 and should not be written up even though fair value is up. I don’t think writing up is valid for equity investment under either standard. Am I wrong? for hft, no impairment is done so write-up/down is not a subject. but this question is not clear about this point.
the question never mentioned that there was impairment going on. The market value becomes the balance sheet value on the date. in fact here Impairment would not occur in passive investments - except for HTM securities.
cpk123: thank you for discussion: 1. HTM, to my understanding, is not appropriate here. How can we define maturity for stock? If one really wanted to take passive investment as HTM, then the carrying value would be historical cost at 1200 (the book answer will still be wrong). 2. Is the balance sheet account recorded at fair value the same as what is defined for carrying value? If it were, then there wouldn’t be the case for impairment for hfs, because they would always be equal. 3. even though the question pe se doesn’t ask impairment, it doesn’t automatically mean this is hft. If it is hft, then the book answer would be right. So rather I think the question is ambiguous in this matter.
That question is easier after CFAI questions on that subject. Run thru CFAI fsa questions on that sub and U should get it down cold as ice.