Fair Value Option (FVO) Flashcards
What is the purpose of Fair Value Option?
The FVO allows entities to measure most recognized financial assets and liabilities at Fair Value.
- Unrealized gains and losses are reported in EARNINGS(Income statement) at each subsequent reporting date.
How are financial instruments elected for FV?
The decision whether to elect the FVO is made IRREVOCABLY at an election date (unless a new election date occurs).
With certain exceptions, the decision is made Instrument by Instrument and only for an Entire Instrument.
How is FVO applied to multiple instruments in a single transaction?
The FVO generally need NOT be applied to ALL instruments in a single transaction.
-But an instrument that constitutes one legal contract is indivisible for FVO purposes.
The election for the FVO may be made only on the date of?
1) Initial recognition of an eligible item
2) Making an eligible firm commitment
3) A change in accounting for an investment in another entity b/c it becomes subject to the equity method
4) Deconsolidation of a subsidiary or a variable interest entity (w/ retentino of an interest)
5) An event requiring measurement of an eligible item at F.V on that date but NOT subsequently (exclude LCM impairment)
What are some examples of events that require either Remeasurement at FV or initial recognition (or both) of eligible items
1) Business Combination
2) Consolidation or deconsolidation, or
3) Significant modification of debt
How are items with Fair Values reported on the Balance sheet?
Assets and Liabilities measured using FVO are reported by separating their reported FV from the carrying amounts of similar items
How are items with Fair Values reported on the Income Statement?
Unrealized gains and losses on items measured using the FVO are recognized in EARNINGS at each subsequent reporting date.
- Upfront costs and fees related to those items are recognized as incurred
How are items with Fair Values reported on the Cash Flow Statement?
Classified according to their nature and purpose.
