Question

How fair value gains, when credit rating deteriorates?

How fair value gains, when credit rating deteriorates?

Homework Answers

Answer #1

The standard requires the company’s consideration of it's own credit standing when calculating the fair value gains. The perceived 'anomaly' of considering the gains in profit/ loss when the credit rating of entity deteriorates need to be helped with the disclosure of the fair value changes attributable to credit risk. When the assets of the company are measured at fair value, then the changes in credit spreads on such assets will impact on the fair value. It will create few counter intuitive results, for instance the income statement losses when the fair value of gains increases due to deterioration in credit quality.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Unrealized gains or losses occur when             A.        a company adjusts assets from cost value to...
Unrealized gains or losses occur when             A.        a company adjusts assets from cost value to book value.             B.        a company adjusts assets from fair value to cost value.             C.        a company adjusts assets from book value to fair value.             D.        a company adjusts assets from fair value to book value.
how to calculate the dollar amount of debt if the company want to achieve credit rating...
how to calculate the dollar amount of debt if the company want to achieve credit rating of A using ebit interest coverage(6.9x), interest rate(7.31%) and estimated ebit projections(382.5)
our firm has a credit rating of A. You notice that the credit spread for 10-year...
our firm has a credit rating of A. You notice that the credit spread for 10-year maturity debt with a credit rating of A is 100 basis points (1%). Your firm’s ten-year debt has a coupon rate of 1.2% and face value of $1,000. You see that new 10-year Treasury notes are being issued at par with a coupon rate of 1.5%. What should the price of your outstanding 10-year bon ds be?
Your firm has a credit rating of A. You notice that the credit spread for 10-year...
Your firm has a credit rating of A. You notice that the credit spread for 10-year maturity debt with a credit rating of A is 100 basis points (1%). Your firm’s ten-year debt has a coupon rate of 1.2% and face value of $1,000. You see that new 10-year Treasury notes are being issued at par with a coupon rate of 1.5%. What should the price of your outstanding 10-year bonds be?
Bond Class Par Value Credit Rating Class A     $150,000,000 AAA Class B $ 50,000,000 AA...
Bond Class Par Value Credit Rating Class A     $150,000,000 AAA Class B $ 50,000,000 AA Class C $ 25,000,000 A Total $ 175,000,000 9) At what level of loss would Class B experience a loss? a) $25MM b) $26MM c) $75MM 10) The creation of a bond classes with a waterfall structure for sharing losses is referred to as: a) Credit Tranching b) Time Tranching c) Excess Reserves 11) How would this structure above best be described? a) A...
How do we account for an investment when we pay more than the fair value of...
How do we account for an investment when we pay more than the fair value of the investee’s net assets?
Q: The comparative advantage argument in defense of free trade deteriorates when, A) Three countries and...
Q: The comparative advantage argument in defense of free trade deteriorates when, A) Three countries and three products are compared. B) The principle of increasing opportunity cost is present. C) Markets are not assumed to be static. D) All of the above. E) None of the above.
The Fair-Value Adjustment account has a beginning balance of 30,000 credit. If you have a trading...
The Fair-Value Adjustment account has a beginning balance of 30,000 credit. If you have a trading security that started the year with a fair value of 130,000 and ended the year with a fair value of 70,000 what is the required journal entry? What if the ending balance of the trading security was 200,000?
Reporting an investment at its fair value means adjusting its carrying amount for changes in fair...
Reporting an investment at its fair value means adjusting its carrying amount for changes in fair value after its acquisition (or since the last reporting date if it was held at that time). Such changes are called unrealized holding gains and losses because they haven't yet been realized through the sale of security. If the security is classified as available-for-sale, how are unrealized holding gains and losses typically reported? Please answer the question in a minimum of 1 paragraph and...
Find a company for which Moody's and/or Standard and Poor's has recently changed the credit rating...
Find a company for which Moody's and/or Standard and Poor's has recently changed the credit rating (either good or bad). Provide details on why the rating was changed. What happened to the company's stock price when the rating was changed? https://www.standardandpoors.com//en_US/web/guest/home
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT