CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Which of the following statements related to impairments of investments is not correct (under U.S. GAAP)?

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.
Correct Answer: B

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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