- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 10. Intercorporate Investments
- Subject 3. Investments in Associates
CFA Practice Question
Which statement is true?
II. Equity method investments are subject to review for impairment.
I. In the equity method, if there is a difference between the cost of the acquisition and investor's share of the fair value of the net identifiable assets, the difference should be reported as goodwill as a separate item.
II. Equity method investments are subject to review for impairment.
Correct Answer: II
II is true: If the fair value declines below the carrying value and the decline is determined to be permanent, then an impairment loss should be recognized.
I is false: The goodwill is included in the carrying amount of the investment.
II is true: If the fair value declines below the carrying value and the decline is determined to be permanent, then an impairment loss should be recognized.
User Contributed Comments 2
| User | Comment |
|---|---|
| vi2009 | I. The definition of goodwill is accurate. What is not true is the part about the reporting ... in the equity method, only 1 line of reporting which is the investment, therefore goodwill is part of the carrying value of the investment. |
| davidt876 | thanks vi |