Situation 1.

Presented below are four unrelated situations involving equity securities that have readily determinable fair values.

A noncurrent portfolio with an aggregate market value in excess of cost adds one particular security whose market value has declined to less than half of the original cost. The decline in value is taken to be other than temporary.

Situation 2

The balance sheet of a company does not categorize assets and liabilities as current and noncurrent. The portfolio of marketable equity securities includes securities usually considered to be trading securities that have a net cost in excess of market value of $2,000. The remainder of the portfolio is taken noncurrent and has a net market value in excess of $5,000.

Situation 3

A marketable equity security, whose market value is presently less than cost, is classified as a noncurrent security that is available for sale but is to be reclassified as a trading security.

Situation 4

A company's noncurrent portfolio of marketable equity securities consists of the general stock of one company. At the end of the prior year the market value of the security was 50% of original cost, and the effect was accurately reflected in the balance sheet. Thus, at the end of the present year the market value of the security had appreciated to twice the original cost. The security is still considered noncurrent at year-end.

Required:

Evaluate the effect on classification, carrying value, and earnings for each of the given situations.

2. Discuss whether U.S. GAAP under SFAS No. 115 or the needs of IAS No. 25 are more consistent with the subsequent concepts:

i. Conservatism

ii. Comparability

iii. Relevance

iv. Neutrality

v. Representational faithfulness

vi. Physical capital maintenance