Question

Below are two unrelated cases involving marketable equity securities. Explain how the information provided affects the classification, carrying value, and income reported for that company's investment securities.

1. The balance sheet of a company does not classify assets and liabilities as current and noncurrent. The portfolio of available-for-sale equity securities includes securities normally considered current that have a net cost in excess of market value of $2,000. The remainder of the portfolio has a net market value in excess of cost of $5,000.
2. A company's noncurrent portfolio of marketable equity securities consists of the common stock of one company. At the end of the prior year, the market value of the security was 50% of original cost, and this effect was properly reflected in a Valuation Adjustment account. However, at the end of the current year, the market value of the security had appreciated to twice the original cost. The security is still considered noncurrent at year-end.

Answer 1

According to IFRS 9, any gain or loss in the market value during the given period should be incorporated in the present year by debiting or crediting the Income Statement depending whether the value of the asset has appreciated or depreciated. Hence, the available for sale securities had registered a loss of $2000 since cost had exceeded market value and the remainder of the portfolio had registered a gain of $5000 since market value had exceeded. Accordinly, a $3000 should be recorded in the Income Statement and the value of the assets at the market value would be shown on the Balance Sheet

In the second case, the company's noncurrent portfolio of marketable securities should be adjusted in accordance with IFRS 9 and an amount equal to 1.5 times the cost of the investment should be passed through the Valuation Adjustment account and credited to the Profit and Loss Account since the value of the onvestment has appreciated and the the investment to be recorded at the Balance Sheet should be shown at a value twice the cost or the market value.