Far 3 Study Note

F3-1

Marketable debt securities that the company has the intent and ability to hold to maturity, both “long” and “short” term, are reported at carrying amount (amortized cost) unless there is a permanent decline in market value.

Under IFRS, unrealized gains and losses for all available for sale securities and foreign exchange gains and losses for AFS equity securities are reported as OCI. Foreign exchanges gains and losses on AFS debt securities are reported on the income statement.

Under IFRS, reversals of impairment losses are allowed and the increase would be booked to the current year’s income statement. (Under GAAP, reversals are not allowed.)

F3-2 Business consolidation

The liabilities of any company, which is greater than 50% owned, should be included as liabilities in the consolidated financial statements.

Reporting consolidated financial statements is consistent with the concept that the economic entity can be identified with a unit of accountability. (economic entity)

F3-3 Cost Method (External reporting)

F3-4 Equity Method and Joint Venture (External reporting)

Investor records its share of the investee’s earnings (not “dividends received”) as revenue under equity method. Dividends from an investee company are recorded by the investor as a reduction in the carry amount of the investment on the balance sheet of the investor.

Changes in the market value of investee’s common stock are not considered income to the parent under the equity method.

Under cost method, receipt of dividends is recorded as income and does not affect the investment account.

Under equity methods, the adjustment on prior year depreciation should be reported as an adjustment to the opening balance of retained earnings, not on the current period income statement.

Under the equity method, the common stock dividends are recorded as a reduction to the investment account. Preferred stock ownership does not allow the investor to exercise influence, so the preferred stock...