Question #18 - Reading 8 Intercorporate Investments

Reading: Reading 8 Intercorporate Investments

PDF File: Reading 8 Intercorporate Investments.pdf

Page: 8

Status: Correct

Correct Answer: A

Shared Context

- In late 20X6, Company X decided to reclassify the investments in stock. What classification can the company classify the investment in stocks to? A) Fair value through profit or loss or amortized cost. B) Reclassification would not be allowed. C) Fair value through profit or loss only.

Question

Assuming that the investments were initially classified as fair value through profit or loss. The company can reclassify:

Answer Choices:

A. debt security only if the business model has changed

B. equity security but only into fair value through OCI

C. both debt and equity securities into fair value through OCI

Explanation

Reclassification of equity securities under the standards is not permitted as the initial designation (FVPL or FVOCI) is irrevocable. Reclassification of debt securities from amortized cost to FVPL (or vice versa) is permitted only if the business model has changed.

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