Investments Flashcards
How is debt impairment (credit losses) handled for AFS debt securities?
Impairment on AFS securities is accounted for differently from impairment on held to maturity securities because the investor has the option to sell an AFS security if the loss on the sale will be less than the expected credit loss. As a result, the credit loss reported in net income on an AFS security is limited to the amount by which FV is below amortized cost. Any additional loss is reported as an unrealized loss in OCI.
How is debt impairment (credit losses) handled for held-to-maturity debt securities?
If it is probable that all amounts due (principal and interest) will not be collected on a debt investment reported at amortized cost, the investment should be reported at the present value of the principal and interest that is expected to be collected. The credit loss is the difference between the amortized cost and the present value.
