Application of the cost model to the investment one company makes in another entity's shares is straightforward and includes all of the following EXCEPT
A) recognize the cost of the investment at the fair value of shares acquired.
B) unless impaired, report the investment at its fair value at each balance sheet date.
C) recognize dividend income when the entity has a claim to the dividend.
D) when the shares are disposed of, derecognize them and report a gain or loss on disposal in net income.

Question

Quizplus · Accepted Answer

The cost model involves recording the investment at its initial cost and does not require reporting the investment at its fair value at each balance sheet date unless there is impairment. This is a key difference from the fair value model.

Application of the Cost Model to the Investment One Company