4.04- Sale of AFS and Impairment Loss Flashcards
How do you treat it when an AFS is sold?
the difference between the cost and the proceeds is treated as a realized gain/loss
What do you do if it is the last investment with an AFS?
the allowance and unrealized gain/loss both need to be eliminated
Can there be an impairment loss in AFS?
Yes, they are impaired when there is a decline in value that is considered “other than temporary”
How would you show an impairment loss?
- amount will be the difference between original cost and declined value
- amount reclassified out of OCI and now a loss in calculating net income
Once written down can an impairment loss be covered?
NO! it will be written down to FMV, the loss will be a realized loss
What is the two step process if the decline in value is other than temporary?
Step 1: Determine whether an investment is impaired
Step 2: Evaluate whether an impairment is Other-than-temporary
How do you determine the amount of loss if a decline is determined to be something other than temporary?
- for equity securities, difference between FV at balance sheet date and cost of the investment
- for debt securities, if going to sell before recovery difference between FV and amortized cost if they are not going to sell a portion of loss will go to earnings and remainder will go to OCI
Can securities be reclassified between one category to another?
Yes
How do you treat a reclassification between trading securities and AFS securities?
- Reclassify at FMV
- treat difference as realized gain/loss on income statement
- eliminate any related valuation allowance accounts
How do you treat a reclassification between held to maturity and Available for sale?
- Reclassify at FMV
- If HTM to AFS record in OCI
- If AFS to HTM unrealized gain/loss reported on B/S as part of comprehensive income and amortized over the life of the security
