ACE Inc has the following investments at December 31, 2020: $$\begin{array} { | l | r | r | r | r | }
\hline & \text { Historical cost } & \begin{array} { c }
\text { Fair value } \
\text { Sept } 30,2019
\end{array} & \begin{array} { c }
\text { Fair value } \
\text { Sept 30, 2020 }
\end{array} & \begin{array} { c }
\text { Fair value } \
\text { Dec } 31,2020
\end{array} \
\hline \text { Shares of DEF } & 25,000 & 15,000 & 27,000 & 30,000 \
\hline \text { Bonds of Brooke } & & & & 12,500 \
\text { (purchased at par value) } & 10,000 & 12,000 & 11,000 & 16,000 \
\hline \text { Shares of CooksTown } & 12,000 & 18,000 & 16,000 & 20,500 \
\hline \text { Shares of Daisy } & 18,000 & 16,500 & 19,500 & 120 \
\hline
\end{array}$$ If ACE classifies its investment in DEF at fair value through profit or loss, what amount will be reported in income for the three months ended December 31, 2020 pertaining to this investment?

Question

ACE Inc has the following investments at December 31, 2020: $$\begin{array} { | l | r | r | r | r | } 
\hline & \text { Historical cost } & \begin{array} { c } 
\text { Fair value } \
\text { Sept } 30,2019
\end{array} & \begin{array} { c } 
\text { Fair value } \
\text { Sept 30, 2020 }
\end{array} & \begin{array} { c } 
\text { Fair value } \
\text { Dec } 31,2020
\end{array} \
\hline \text { Shares of DEF } & 25,000 & 15,000 & 27,000 & 30,000 \
\hline \text { Bonds of Brooke } & & & & 12,500 \
\text { (purchased at par value) } & 10,000 & 12,000 & 11,000 & 16,000 \
\hline \text { Shares of CooksTown } & 12,000 & 18,000 & 16,000 & 20,500 \
\hline \text { Shares of Daisy } & 18,000 & 16,500 & 19,500 & 120 \
\hline
\end{array}$$ If ACE classifies its investment in DEF at fair value through profit or loss, what amount will be reported in income for the three months ended December 31, 2020 pertaining to this investment?

Quizplus · Accepted Answer

As ACE has classified its investment in DEF at fair value through profit or loss, any changes in the fair value of this investment will be reported in income. Therefore, the gain in fair value of DEF from Sept 30, 2020 to Dec 31, 2020, which is $3,000 (30,000 - 27,000), will be reported in ACE's income statement for the three months ended December 31, 2020. The fair value changes of the other investments will not be reported in income unless they are also classified as fair value through profit or loss.

ACE Inc Has the Following Investments at December 31, 2020