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  • 1.  CMA Part 1, Measurement alternative for an investment in Equity Securities

    Posted 10-06-2020 01:26 PM
    Hello study fellows,

    I am struggling on this subject: CMA Part 1, study unit 2, subunit 2.5. 'Measurement alternative for an investment in equity'.
    Regarding the facts (Gleim CMA Review book):
    (1) "The investment is measured at fair value at each balance sheet date."
    (2) "The entity must reassess at each reporting period whether the fair value of an equity investment is readily determinable." If the qualitative assessment indicates potential impairment, the entity must estimate the fair value of the investment and perform a quantitative impairment test.
    My question: at that point if the fair value of the investment can be estimated to calculate the impairment, why shouldn't this estimated fair value be used to measure the investment at fair value?

    Thanks for your response and support.
    Kind regards,
    Leandra Tel


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    Leandra Tel
    [open to work]
    Arnhem
    Netherlands
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  • 2.  RE: CMA Part 1, Measurement alternative for an investment in Equity Securities

    Posted 10-12-2020 10:11 AM
    Hello,

    I received two good responds that answered my questions and cleared my struggles.
    Thanks a lot Lori and Victor!
    I want to avoid others spilling time helping me though it's no longer necessary.
    But I do not know how to close this thread. So, a message should solve this.

    Best regards,
    Leanrda Tel

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    Leandra Tel
    [open to work]
    Arnhem
    Netherlands
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  • 3.  RE: CMA Part 1, Measurement alternative for an investment in Equity Securities

    Posted 10-14-2020 01:51 PM
    Insights I took away from responses and answered my question:

    The process of `Impairment-Test' exists to ensure that the recorded value of an investment in equity securities in a not public traded company does reflect most accurately the fair value. For the estimation of the fair value, a thorough understanding of the financial statements of the investee is necessary. Going through that process is more important than whether 'the estimated fair value' equals 'the fair value' or not. Considering the objective of the process it makes sense that 'the estimated fair value' alone cannot replace the 'fair value' and additional research on identical or a similar investment of the same issuer is required. After all, for a public traded company the result of such a consideration is often somehow reflected in the fair value per share.

    Regards,
    Leandra


    ------------------------------
    Leandra Tel
    [open to work]
    Arnhem
    Netherlands
    ------------------------------