• A company can report unrealized gains and losses in one of two ways: (1) in net
income of the period or (2) in net income for unrealized gains and losses on trading
securities and as part of equity for “nontrading”securities.
Note that the only significant difference between the provisions of IAS 39 and those
of FASB Statement No. 115 is in the reporting of unrealized gains and losses. Under IAS 39,
a company can choose the same treatment required under Statement No. 115, in which
unrealized gains and losses on trading securities are recognized as part of net income but
those on available-for-sale securities are recognized as part of stockholders’ equity, or a
company can elect to recognize all unrealized gains and losses as part of net income.
Thus, it appears that the provisions of Statement No. 115, adopted in the United States in
1993, have now become the accepted international benchmark.
In this section of the chapter, we deal with two variations of topics previously
discussed. While changes in the classification of securities associated with FASB
Statement No. 115 might be common, changes to and from the equity method are less
common—and can be more complex. We discuss the complexities in this expanded
material. In addition, to this point in the chapter we have talked about securities for
which there is a tradeable market. In some instances, a company may invest in another
firm in the form of a nonmarketable security. The most common example of this type
of security would be a loan. In this expanded material we deal with the most complex
issue associated with these nonmarketable securities—impairment.
CHANGES IN CLASSIFICATION
INVOLVING THE EQUITY METHOD
Variations in percentage of ownership caused by additional purchases or sales of stock
by the investor or by the additional sale or retirement of stock by the investee may
require a change in accounting method. For example, if the equity method has been used
but subsequent events reduce the investment ownership below 20%, a change should be
made to accou