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Hey guys,
Sounds silly, but I’m getting hung up on why we have Equity Method and Fair Value OPTION.
My understanding is that you only “classify” securities if you have significant influence and elect FVO or have bought securities as an investment (not interested in controlling interest).
If you have significant control (more than 20%) -> requires Equity Method
Significant Influence -> Equity or FVO
Is the Option in FVO referring to optional application of FV in lieu of Equity Method if we have significant influence?
How does FVO treatment differ from Equity Method?
If we elect FVO do we then classify as Trading or AFS depending on intent?
AFS Unrealized hits OCI; Realized hits Investment – AFS
Trading Unrealized hits RE; Realized hits Investment – Trading
Equity Method = always Realized = hits Investment – Company Name
Equity Method (at purchase):
Dr – Investment – Company Name
Cr – Cash
AFS: (FVO)
Dr- Investment – AFS
Cr- Cash
Trading: (FVO)
Dr- Investment – Trading
Cr- Cash
My study materials (Gleim) say that FVO does not apply to securities classification (HTM, AFS, Trading). But we still measure AFS and Trading at Fair Value…
Can somebody please explain the difference between FVO and Fair Value and how these relate to the Equity Method and Securities Classification? I know it’s a lot to ask. Much appreciated.
AUD (89)
FAR (81)
REG (April 2)
BEC (May 22)gleim boy through and through
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