investment Flashcards
What if Available for sale security’s fair value go below amortized cost?
when an available-for-sale debt security has a fair value that is below amortized cost, the asset must be written down to the lower fair value by recording a credit loss that is recognized on the income statement. Even though the fair value is above the present value of expected cash flows, an available-for-sale security can be sold at any time so the credit loss is limited to the difference between amortized cost and fair value.
credit loss should be recognized in income statement
UNDER CECL (CURRENT EXPECTED CREDIT LOSS) MODEL WHEN TO RECORD LOSS
UNDER CECL METHOD WHEN AMORTIZED COST FOR HELD TO MATURITY INVESMENT IS GREATER THAN PRESENT VALUE OF FUTURE CASH FLOW, THAT POINT OF TIME WE NEED TO RECORD LOSS
How to treat credit loss if amortized cost is more than future cash flow but fair value is above amortized cost (purchase price) for available for sale security
generally credit loss is incurred if amortized cost is more than present value of future cash flow but if fair value is more than amortized cost we will not record credit loss we will record unrealized gain( difference betwwn fair value and amortised cost (purchase cost)
how to treat excess fair value of asset over its book value
the excess of an assets fair value is amortized over life of asset. This additional amortization causes the investors share of investee’s income to decrease
