F3 Marketable Securities

Question 1

Trading Securities ( debt and equity)

Answer 1

• current assets
• securities (both debt and equity) that are bought and held principally for the purpose of selling them in the near future
• reported at fair value

Question 2

Available for sale ( debt and equity)

Answer 2

• general rule : noncurrent assets
• securities ( both debt and equity) not meeting the definitions of the other 2 classifications ( trading or held-to-maturity)
• securities classified as AFS are classified as either current assets or noncurrent assets, depending on the intent of the corporation
• reported at fair value

Question 3

Held-to-Maturity ( debt securities only)

Answer 3

• only debt because equity never matures
• general rule: noncurrent assets
• are classified as held to maturity securities only if the corporation has the positive intent and ability to hold these securities until they reach maturity

Question 4

Fair Value

Answer 4

mark to market

Question 5

Unrealized Gains and Losses-Trading Securities

Answer 5

• are included in earnings
• record the loss in income from continuing operations
  DR: unrealized loss on trading securities
  CR: Valuation account (fair value adjustment)

Question 6

Unrealized Gains and Losses- Available for Sale Securities

Answer 6

even if they are current assets they are reported in other comprehensive income
DR: Unrealized loss on AFS
CR: Valuation account (fair value adjustment)
* every year you will do a mark to market and that incremental difference will hit OCI

Question 7

Deferred Taxes

Answer 7

GAAP= income/loss
Tax Return= not taxable (until sold)
____________________________
Deferred Taxes

Question 8

Reclassiifcation

Answer 8

• any transfer of a particular security from one group to another is accounted for at fair value

Question 9

From Trading Category

Answer 9

• the unrealized gain or loss transfer is already recognized in earnings and shall not be reversed
• when transferring from a trading security to AFS , the transfer is made at fair value
• any difference if any is recorded as an unrealized gain or loss on the income statement
• the new carrying amount becomes the new basis for any future gain or loss

Question 10

To Trading Category

Answer 10

• the unrealized gain or loss at the date of transfer shall be recognized in earnings immediately

Question 11

Debt Security Classified as HTM transferred to AFS

Answer 11

• the unrealized holding gain or loss at the date of transfer shall be reported in OCI

Question 12

Debt Security Classified as AFS transferred to HTM

Answer 12

• the unrealized holding gain or loss at the date of the transfer is already reported in OCI
• the unrealized holding gain or loss shall be amortized over the remaining life of the security
• amortize into income statement any gain or loss that was in OCI

Question 13

Impairment

Answer 13

if the decline in fair value of the security is other than temporary , the cost basis of the individual security is written down to fair value as the new cost basis and the amount of the write-down is accounted for as a REALIZED loss included in earnings

Question 14

Sale of the Security

Answer 14

• a sale of the security from any category results in a realized gain or loss and is reported on the income statement for the period

Question 15

Impairment Loss- IFRS

Answer 15

-under IFRS impairment losses are allowed and are reflected on the current year’s income statement