F3

Question 1

trade
available for sale
held to maturity

Classification

Answer 1

trading securities are reported at fair value, with holding gains and losses included in earnings.

AFS - reported at fair value; Unrealized gains and losses on AFS should be reported as OCI.

HTM - reported at amortized cost; HTM both long and short term are reported at carrying amount (amortized cost) unless there is a permanent decline in market value.

Question 2

bond investments which are intended to be held until the maturity

Answer 2

are classified as held-to-maturity securities and are reported at their amortized cost.

Question 3

Rules: unrealized gains and losses are reported as follows:

Answer 3

trading - reported at fair value with unrealized gains and losses included in earnings (along with “realized” gains and losses, if any).

AFS - reported at fair value with unrealized G / L on OCI.

Question 4

AFS permanent loss

Answer 4

permannet impairment in value results in a writedown and a charge to income as if loss was realized.

not permanent, not report.

**if the decline in fair value is other than temporary, the cost basis of the individual security is written down to fair value as the new cost basis and the amount of the write-down is accounted for as a realized loss and included in earnings (I/S).

Question 5

transfer different security types

Answer 5

1. Trading to any others (G/L on Income statement)
   fair value
2. Any others to trading (G/L on Income statement)
   fair value

3.HTM to AFS (G/L on OCI, listen to AFS)
fair value

4. AFS to HTM (amortize gain or loss from OCI with any bond premium or discount, listen to HTM)
fair value (amortize)

Question 6

Marketable Securities Classification (IFRS)

Answer 6

1. Financial assets at fair value through profit or loss
   conditions need to be met -
   (1) trading
   (2) using fair value option
2. afs
3. htm

Question 7

unrealized and realized gain and loss in trading and AFS

Answer 7

1. Trading
   - year end mark to market: Unrealized G/L, hit I/S
   - when sold: realized G/L, hit I/S
2. AFS
   - year end mark to market: unrealized G/L, hit OCI
   - when sold: realized G/L. hit I/S

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Question 8

3 things of cost method (less than 20%, no significant influence)

Answer 8

1. balance sheet
   investment xxxx
   cash xxx
2. income statement (only dividend income)
3. year end mark to market adjustment (just like AFS)

Question 9

what is the exception to not consolidating a majority-owned sub?

Answer 9

when the sub is in legal reorganization or bankruptcy

and / or

the sub operates under severe foreign currency exchange restrictions, controls, or other governmentally imposed uncertainties so severe that they cast significant doubt on the parent’s ability to control the sub.

Question 10

Consolidation

Answer 10

Consolidate ALL majority-owned subsidiaries to have one management and one economic entity, including domestic, foreign, similar, and dissimilar sub (over 50% ownership and fully control). Only the parent prepares the consolidated financial statements.

Question 11

impairment of AFS

Answer 11

when an afs is determined to be impaired because of an other than temporary decline in fair value below cost, the asset must be written down to the lower fair value by recording a loss that is recognized on the income statement.

Question 12

Under IFRS reversal of impairment on AFS

Answer 12

it is allowed and the increase would be booked to the current year’s i/s.

Question 13

Consolidation - vertical chain

Answer 13

in a vertical chain, where parent owns more than 50% of sub, and sub owns more than 50% of a third party (sub’s sub), parent needs to consolidate:

1. third co into sub
2. sub co. (now consolidate with third co) into parent co.