[Anonymous]

Hi all,

I encountered a fairly odd sim in CPAExcel and just want to make sure the answer they provided isn’t wrong. I know that AFS securities are valued at fair value at each balance sheet date with the gain/loss recognized in OCI. However, is the gain/loss relative to the original cost or the previous fair value?

So for example is 2013 we have a security worth 1,000, 2014 it goes down to 900, and 2015 it goes to down to 800.

Is the loss in OCI in 2015 100 (compared to previous FV) or 200 (compared to original cost). I always thought that the gain/loss was compared to the most recent FV (100 in this example) but this SIM says that the amount that goes to OCI is relative to the original cost (200)….help?

[Anonymous]

It's been 2 months since I've taken FAR, but I believe you are correct. I think in 2015 you would recognize the $100 loss in OCI (comparing the current FV to the most recent FV in 2014). If the security was later sold, I think you would compare the FV at sale date to the original cost and recognize that loss/gain in income. Someone correct me if I'm wrong.

[Anonymous]

It's been 2 months since I've taken FAR, but I believe you are correct. I think in 2015 you would recognize the $100 loss in OCI (comparing the current FV to the most recent FV in 2014). If the security was later sold, I think you would compare the FV at sale date to the original cost and recognize that loss/gain in income. Someone correct me if I'm wrong.

[Anonymous]

You're definitely correct for the recognized loss. Still not positive about the unrecognized gains/losses to OCI. Hopefully someone else can chime in.

[Anonymous]

You're definitely correct for the recognized loss. Still not positive about the unrecognized gains/losses to OCI. Hopefully someone else can chime in.

[Anonymous]

Not sure if you have the mentoring thing with CPAexcel. If so, I'm sure someone's probably brought this up with the professor on the discussion board.

[Anonymous]

Not sure if you have the mentoring thing with CPAexcel. If so, I'm sure someone's probably brought this up with the professor on the discussion board.

[kashu123]

i learned a lot and got very helpful information from your blog. Thanks for sharing.

[kashu123]

i learned a lot and got very helpful information from your blog. Thanks for sharing.

[highlightnumb]

Hi keep in mind that AFS is always reported at FV. The only time original cost comes into play is when AFS is sold (original cost-sales price). If the AFS is not permanently impaired or sold, all unrealized gains and losses FV adjustments go OCI during the year and are closed out to AOCI at year end. So you are correct cscpa21 and co10101 the amount reported in AOCI at year 2015 is 100. Im not really sure why your material is saying the 200 goes to OCI. The only thing i can think of is the 200 would go to OCI because it was sold in 2015 but it would actually be a credit to OCI to remove the unrealized loss from AOCI or another reason i can think of is that 200 is a combination of multiple securities totaling 200.

FAR. Feb 2014 76
REG. Jan 2015 79 half way there!!
BEC. Feb 2015 79 thank you God!!
AUD. Apr 20, 2015 and will be done. Hold that thought 65, 7/14/15 85!
Ok where was I? Oh thats right now I'm Done!!!!!!!!!
Ethics 92!!

"You down wit SEC?, yeah you know me!!!"

Cali Candidate

All Becker Materials, Wiley Test Bank, Ninja audio, Ninja MCQ, Ninja Notes

[highlightnumb]

Hi keep in mind that AFS is always reported at FV. The only time original cost comes into play is when AFS is sold (original cost-sales price). If the AFS is not permanently impaired or sold, all unrealized gains and losses FV adjustments go OCI during the year and are closed out to AOCI at year end. So you are correct cscpa21 and co10101 the amount reported in AOCI at year 2015 is 100. Im not really sure why your material is saying the 200 goes to OCI. The only thing i can think of is the 200 would go to OCI because it was sold in 2015 but it would actually be a credit to OCI to remove the unrealized loss from AOCI or another reason i can think of is that 200 is a combination of multiple securities totaling 200.

FAR. Feb 2014 76
REG. Jan 2015 79 half way there!!
BEC. Feb 2015 79 thank you God!!
AUD. Apr 20, 2015 and will be done. Hold that thought 65, 7/14/15 85!
Ok where was I? Oh thats right now I'm Done!!!!!!!!!
Ethics 92!!

"You down wit SEC?, yeah you know me!!!"

Cali Candidate

All Becker Materials, Wiley Test Bank, Ninja audio, Ninja MCQ, Ninja Notes

[Whopper Warrior]

OCI is not an income statement account, it goes on the balance sheet as AOCI until reversed so OCI should show a balance of 200 at the end of 2015.

2013

Available for Sale Security (dr.) 1,000

Cash (cr) 1,000

2014

Unrealized Holding Loss – OCI (dr) 100

Valuation Account – AFS (cr) 100

Closing

AOCI 100

Unrealized Holding Loss 100

2015

Unrealized Holding Loss – OCI (dr) 100

Valuation Account – AFS (cr) 100

Closing

AOCI 100

Unrealized Holding Loss 100

2015 Balance sheet presentation

Available for Sale Security (less valuation) 800

Owners Equity 1000

AOCI (200)

Total Stockholders Equity 800

That is the only conceivbable way there is 200 in OCI. For revaluation purposes it would always be based on current balance sheet balance (+/- valuation), not the original cost.

Lets say in 2016 we sell for 800

Valuation Account(dr) 200

AOCI (cr) 200

Cash (dr.) 800

Loss (dr) 200

AFS (cr) 1000

B.S presentation

Cash 800

Equity 800

As you can see the loss was accounted for over the years by showing Total Equity as 800 in year 2015 and 2016, however an AFS security is meant to be held for a long time and could reverse so we defer recognition on the income statement which causes a running balance on the balance sheet.

ALL 4 parts passed summer 13
Ethics October 13
Experience (waiting)

Becker Only

[Whopper Warrior]

OCI is not an income statement account, it goes on the balance sheet as AOCI until reversed so OCI should show a balance of 200 at the end of 2015.

2013

Available for Sale Security (dr.) 1,000

Cash (cr) 1,000

2014

Unrealized Holding Loss – OCI (dr) 100

Valuation Account – AFS (cr) 100

Closing

AOCI 100

Unrealized Holding Loss 100

2015

Unrealized Holding Loss – OCI (dr) 100

Valuation Account – AFS (cr) 100

Closing

AOCI 100

Unrealized Holding Loss 100

2015 Balance sheet presentation

Available for Sale Security (less valuation) 800

Owners Equity 1000

AOCI (200)

Total Stockholders Equity 800

That is the only conceivbable way there is 200 in OCI. For revaluation purposes it would always be based on current balance sheet balance (+/- valuation), not the original cost.

Lets say in 2016 we sell for 800

Valuation Account(dr) 200

AOCI (cr) 200

Cash (dr.) 800

Loss (dr) 200

AFS (cr) 1000

B.S presentation

Cash 800

Equity 800

As you can see the loss was accounted for over the years by showing Total Equity as 800 in year 2015 and 2016, however an AFS security is meant to be held for a long time and could reverse so we defer recognition on the income statement which causes a running balance on the balance sheet.

ALL 4 parts passed summer 13
Ethics October 13
Experience (waiting)

Becker Only

[Author]

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