@CPAMommyof3
An entity cannot opt out of FVO, most marketable securities default to FV measurement with exception of HTM which is measured at amortizable cost. However, an entity has an option to use the Equity method or FVO if it owns 20% or greater of the total outstanding shares of an investee or exercises significant control over the investee.
Here is a summary below.
TS- use fair value, recognize unrealized gain or losses in Income statement
AFS- use fair value, recognize unrealized gain or loss in OCI
HTM- use amortized cost
USE OF EQUITY METHOD (Significant Influence)
1.ignore change in value
2.investment account increases by a % of ownership when an investee reports net income….Dr..investment, Cr..Revenue
3 investment account decreases by a % of ownership when an investee reports net loss……Dr..loss, Cr..Investment
4.investment account decreases by a % of ownership when an investee pays dividend……Dr..Dividend , Cr Investment
5. Prefered shares paid by the investee should be reported as revenue on the income statement
USE OF FVO (Significant Influence)
1. The difference btn the FV and the Carrying Amount of the investment is the Gain or Revenue at yr end.
2. Dividend Received from the investee should be recognized as Revenue and reported on the income statement.
3. Investment account will be reduced if dividend received exceed the %of ownership.
Hope this helps
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