CFA level 2 FRA EXAM QUESTIONS AND ANSWERS 100% SOLVED (Newest 2025)a What are the classifications for intercorporate investing activities? - Correct Answers ✅Investments in financial assets. An ownership interest of less than 20% is usually considered a passive investment. In this case, the investor cannot significantly influence or control the investee.Investments in associates. An ownership interest between 20% and 50% is typically a noncontrolling investment; however, the investor can usually significantly influence the investee's business operations.Business combinations. An ownership interest of more than 50% is usually a controlling investment. When the investor can control the investee, the acquisition method is used.How does IFRS categorize financial assets? - Correct Answers ✅amortized cost (debt securities only), fair value through profit or loss (debt and equity), and fair value through OCI (debt and equity) Corresponding classifications under U.S. GAAP are held-to- maturity, held for trading, and available for sale.Amortized Cost - IFRS security treatment - Correct Answers ✅Debt securities that meet two criteria are accounted for using the amortized cost method. 1 / 3
CFA level 2 FRA EXAM QUESTIONS AND ANSWERS 100% SOLVED (Newest 2025)a
Criteria for amortized cost accounting:
Business model test: Debt securities are being held to collect
contractual cash flows.
Cash flow characteristic test: The contractual cash flows are
either principal, or interest on principal, only.These debt securities are reported on the balance sheet at amortized cost. Amortized cost is the original cost of the debt security plus any discount, or minus any premium, that has been amortized to date.Interest income (coupon cash flow adjusted for amortization of premium or discount) is recognized in the income statement, but subsequent changes in fair value are ignored.What are "Investment in Associates" and how are they treated? - Correct Answers ✅Investment ownership of between 20% and 50% is usually considered influential.Influential investments are accounted for using the equity method.Under the equity method, the initial investment is recorded at cost and reported on the balance sheet as a noncurrent asset.In subsequent periods, the proportionate share of the investee's earnings increases the investment account on the 2 / 3
CFA level 2 FRA EXAM QUESTIONS AND ANSWERS 100% SOLVED (Newest 2025)a investor's balance sheet and is recognized in the investor's income statement.U.S. GAAP allows equity method investments to be recorded at fair value. Under IFRS, the fair value option is only available to venture capital firms, mutual funds, and similar entities. The decision to use the fair value option is irrevocable and any changes in value (along with dividends) are recorded in the income statement.If a company uses the equity method to account for an
investment in another company: - Correct Answers
✅income is combined to the extent of ownership.With the equity method, the proportional share of the affiliate's income (% ownership × affiliate earnings) is reported on the investor's income statement. (9.a) How are impairments on investments in associates treated? - Correct Answers ✅Equity method investments must be tested for impairment.Under U.S. GAAP, if the fair value of the investment falls below the carrying value (investment account on the balance sheet) and the decline is considered other-than-temporary, the investment is written-down to fair value and a loss is recognized on the income statement.
- / 3