NOTE 7 - FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2011

Fair Value Disclosures [Text Block]

NOTE 7 – FAIR VALUE MEASUREMENTS

According to Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification, assets and liabilities that are measured at fair value on a recurring and nonrecurring basis in periods subsequent to initial recognition, the reporting entity shall disclose information that enable users of its financial statements to assess the inputs used to develop those measurements and for recurring fair value measurements using significant unobservable inputs, the effect of the measurements on earnings for the period.

In January 2000, Royale Energy received 96,000 shares (as adjusted for a later stock split) in a new start up company (the “Settlement Stock”) as part of a settlement in an action filed against a former consultant.  At the time of the settlement, the value of the Settlement Stock was undeterminable because there was no market for the start-up’s stock.  In September 2009, issuer of the Settlement Stock conducted an initial public offering of stock, and a market for its shares was established.  At June 30, 2010, the fair value of these shares was $710,830 and they were classified as available for sale securities.  The fair value was determined using the number of shares owned as of the last day of the reporting period multiplied by the market price of the Settlement Stock on that day.  For the six months ended June 30, 2010, an unrealized holding loss of $230,890 was recorded in the other comprehensive income (loss) section of the Statement of Operations. The unrealized holding loss included an income tax benefit of $59,759.  Royale also recognized a realized gain of $164,383 and a related income tax expense of $61,150 from the partial liquidation of the Settlement Stock for the period ending June 30, 2010.  By September 30, 2010, the Company had sold all remaining shares of the Settlement Stock.