ACCOUNTING FOR INVESTMENTS UNDER FASB NO.

 115 – AN OVERVIEW

Change in Fair Value

For commercial enterprises
Presentation on
(nonprofit entities follow SFAS No. 124, FASB Other-than-
Financial Statements
1995a) Temporary Temporary
Loss

Does the investor have substantial influence or

control? On BS at historical cost
plus share of earnings
Investor owns 20% to 50% of stock and has
since acquisition less
significant influence but not control of the Realized
dividends received
corporation loss on IS,
(amortization may also N/A
be required) new basis
Use Equity Method on BS
Investor owns over 50% of stock or otherwise
controls the corporation
Consolidated financial
N/A N/A
statements
Consolidation required

Does a readily determinable fair value exist? Realized

loss on IS,
On BS at historical cost N/A
If not, use Cost Method new basis
on BS
On BS at amortized
cost
For debt securities, does the enterprise have the
IS includes Realized
positive intent and ability to hold to maturity?
amortization of loss on IS,
N/A
premiums & discounts new cost
Classify as held-to-maturity
basis on BS
Disclose fair value in
notes
Is the investment objective to generate profits on
short-term differences in price? On BS at fair value Recognized No
on IS and additional
IS reports unrealized included in entries
Classify as Trading Securities
gain/loss for period RE needed
All other debt and equity securities are classified
as On BS at fair value Reported Realized
on SCI and loss on IS,
SCI reports holding included in new cost
Available-for-Sale Securities
gain/loss for period AOCI basis on BS

AOCI = accumulated other comprehensive income (owners’ equity account); BS = balance sheet;
FV = fair value; IS = income statement; RE = retained earnings; SCI = statement of comprehensive income;
N/A = not applicable (since investments are not carried at fair value)