1. SFAS No. 159 With IFRS comparison at end

3. A very simple company that starts with one asset and one liability – to keep it simple!

5. AssetsLiabilities & Owners Equity Bond B$1,000Bond A$1,000 OE$0 Let’s assume that Bond B is accounted for as part of the trading securities investment portfolio. Therefore it is marked to market at each balance sheet date and the gain/loss is reported on the income statement. Bond A is treated in the traditional way.

6. First step – find the present value of the bond investment. Remember, the coupon rate on Bond B is 12% N=19, i=11%, Pmt = $1,000 * 12% = $120, FV=$1,000 Solve for PV = __________________ $1,078

7. AssetsLiabilities & Owners Equity Cash20Bond A$1,000 Bond B$1,078OE$98 This is our traditional accounting (book value for debt, fair value for investments classified as trading Interest revenue $120 – Interest expense $100 + gain $78 = $98 net income

8. AssetsLiabilities & Owners Equity Cash $ 20Bond A$1,000 Bond B1,078RE20 AOCI78 $1,098 If the bond were classified as “available for sale” the gain would be reported in AOCI rather than on the income statement. Interest revenue $120 – Interest expense $100 = $20 net income with $78 gain on statement of comprehensive income

9. $1,090

10. AssetsLiabilities & Owners Equity Cash$ 20Bond A$1,090 Bond B1,078OE 8 $1,098 Interest revenue $120 – gain $78 on investment - $90 loss on liability = $8 net income

11. $922

12. AssetsLiabilities & Owners Equity Cash$ 20Bond A$ 922 Bond B1,078OE176 $1,098 Interest revenue $120 – Interest expense $100 + gain $78 on investment + $78 gain on liability = $176 net income

16. Under FAS107, the fair values of financial instruments are disclosed in the financial statements

17. IAS 39 vs FAS 159 versus

18. Must meet criteria so that financial reporting is improved by fair value measurement Precludes similar items as listed in FAS159 (leases, pensions, etc.) Determination is made at initial recognition and cannot be changed Instrument by instrument decision Applies only to items within scope of FAS159 Determination is made at initial recognition and cannot be changed