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Marketable investments reported on the balance sheet at fair value

Marketable investments reported on the balance sheet at fair value

Which of the following marketable investments are reported on the balance sheet at fair value?
a. Passive debt securities and controlling securities.
b. Influential securities and controlling securities.
c. Passive equity securities.

 

Related questions; (Solved) Impact of Passive Cash Dividend Received

 

Solution

Debt instruments can be measured at amortized cost, fair value through other comprehensive income (FVOCI), or fair value through profit or loss (FVPL) depending on the business model.
Equity instruments are measured at FVPL or FVOCI.
Equity investments held for trading must be measured at FVPL.
Other equity investments can be measured at FVPL or FVOCI, but the choice is irrevocable.
In this case the Correct Answer is: Passive equity securities are reported on the balance sheet at fair value Correct

Solution Explanation

Marketable investments are reported on the balance sheet at fair value based on their classification under accounting standards such as IFRS and US GAAP. The relevant categories include:

  1. Passive Debt Securities: These are typically classified as either held-to-maturity (measured at amortized cost) or available-for-sale (measured at fair value through other comprehensive income). If classified as trading securities, they are reported at fair value through profit or loss.
  1. Controlling Securities: Investments, where the investor has control over the investee, are generally accounted for using the consolidation method, which does not report the investment at fair value but rather includes the assets and liabilities of the investee in the investor’s financial statements.
  1. Influential Securities: These refer to investments where the investor has significant influence but not control, usually accounted for using the equity method. Under this method, these investments are not reported at fair value.
  1. Passive Equity Securities: These investments can be classified as trading or available-for-sale. Trading securities are reported at fair value through profit or loss, while available-for-sale securities are reported at fair value through other comprehensive income.

Based on this classification:

– Passive debt securities and controlling securities (Option a) would not both be reported at fair value.

– Influential securities and controlling securities (Option b) would also not both be reported at fair value.

– Passive equity securities (Option c) can be reported at fair value depending on their classification.

 

Thus, the correct answer is c. Passive equity securities,