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Prior to the adoption of ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, an investor may account for shares in an investee entity using the cost method. If that investee entity is involved in a business combination in which shares of the cost-basis investment are exchanged for all outstanding shares of another entity, and shares of the combined entity will continue to be publicly traded subsequent to the business combination, the investor must determine whether a new basis of accounting for its cost-basis investment is appropriate. In accordance with ASC 325-20-30, the investor in shares of an entity that would be considered the acquirer pursuant to ASC 805-10-25-4 through ASC 805-10-25-5 should continue to carry its investment at historical cost. An investor in an entity that would be considered to be the acquired entity in the business combination should report the transaction at fair value, resulting in a new accounting basis and a gain or loss to the extent that the fair value differs from the investor's basis in the acquired entity's shares.
This consensus is also applicable to an investor accounting for its investments in equity securities under ASC 320. Thus, for example, an investor of the acquired entity in the business combination who classifies investments in marketable common stock as available for sale would establish a new cost basis for the investment and recognize any gain or loss in earnings.
Note that ASU 2016-01 will supersede the accounting for investments accounted for under the cost method and those accounted for as available-for-sale securities. Under ASU 2016-01, entities that hold investments in equity securities with readily determinable fair values will measure such interests at fair value with changes in fair value recorded in earnings. See LI 2.3.1 for details.

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