Abstract This article determines whether significant differences exist between fair market value and the cost method for nonsubsidiary investments other than 50 percent owned companies. Proponents of cost can always argue that use of fair market value is not objective, does not incorporate the costs which would be incurred in selling the security such as tax effects, commission and so forth, and can indicate that the realizable value is somewhat below its market value if a sale of all these securities had occurred. We must confess that we are not much in sympathy with these arguments especially below the 20 percent level. The significance of market value information for less than 20 percent owned companies hopefully has been made evident by this article. In fact, the adoption of the market value approach for less than 20 percent owned companies appears needed. As noted, the Accounting Principles Board of the American Institute of Certified Public Accountants fluctuated between fair market value and cost for less than 20 percent owned companies. Suffice to say that it would be interesting to determine if there are any related blockage effects associated with sales of these types. This issue seems quite significant for if there is no major effect, it would appear to destroy the major argument that proponents of adherents to cost employ. However, only empirical evidence can solve this point, not theoretical arguments. This article has attempted to provide some insight into the magnitude of intercorporate holdings of less than 50 percent. The main conclusion is that market value information would undoubtedly provide useful information to the business and investment community.
Lloyd et al. (Fri,) studied this question.