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Basic Question 8 of 10
Which of the following statements related to impairments of investments is not correct (under U.S. GAAP)?
B. If the decline in value is considered temporary, the cost of the individual security is written down to a new cost basis.
C. The amount of any write-down in value is accounted for as a realized loss.
D. Subsequent increases/decreases in the fair value of impaired available-for-sale securities are included as other comprehensive income.
A. A bankruptcy being experienced by an investee is an example of a permanent loss in value.
B. If the decline in value is considered temporary, the cost of the individual security is written down to a new cost basis.
C. The amount of any write-down in value is accounted for as a realized loss.
D. Subsequent increases/decreases in the fair value of impaired available-for-sale securities are included as other comprehensive income.
User Contributed Comments 7
| User | Comment |
|---|---|
| danlan2 | If it is temporary, then the cost is not written down. |
| daet888 | only non temporary permanent decreases in value are considered impaired and consequently writtent down. Thus temporary decreases are NOT written down. |
| lortola | what about D? |
| joywind | subsequent increase/decrease in the fair value is "unrealized G/L". So for available-for-sale, it should go to "other comprehensive income". |
| arudkov | about D. last paragraph of this reading states that impaired asset is not subject 2 upside revaluation later. |
| olympria | Yes Arudkov. But in this question they are not asking whether that upside movement is recorded as revaluation. They are asking whether that unrealised gain gets recorded in OCI and it does. However, the carrying value of the investment on BS does not get changed (upward revaluation). |
| ashish100 | Ahhhh good point olympics! :) |
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Colin Sampaleanu
Learning Outcome Statements
describe the classification, measurement, and disclosure under International Financial Reporting Standards (IFRS) for 1) investments in financial assets, 2) investments in associates, 3) joint ventures, 4) business combinations, and 5) special purpose and variable interest entities;
distinguish between IFRS and US GAAP in their classification, measurement, and disclosure of investments in financial assets, investments in associates, joint ventures, business combinations, and special purpose and variable interest entities;
analyze how different methods used to account for intercorporate investments affect financial statements and ratios.
CFA® 2025 Level II Curriculum, Volume 2, Module 10.