Marketable Securities (18.6)

Question 1

Define financial instruments, and give examples

Answer 1

Financial instruments are contracts that give rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.1 Financial instruments can be found on the asset side and the liability side of the balance sheet.

Financial assets include investment securities (stocks and bonds), derivatives, loans, and receivables.

Question 2

Under GAAP - how are Held-to-maturity securities cost measured?

Answer 2

Under U.S. GAAP, debt securities acquired with the intent to hold them until they mature are classified as held-to-maturity securities and measured at amortized cost.

Amortized cost is equal to the original issue price minus any principal payments, plus any amortized discount or minus any amortized premium, minus any impairment losses. Subsequent changes in market value are ignored.

Question 3

Which securities’ cost is measured on the balance sheet at fair value?

Answer 3

Financial assets measured at fair value, also known as mark-to-market accounting, include trading securities, available-for-sale securities, and derivatives. This is true for IFRS and GAAP.

Question 4

Under GAAP, how are the following cost reported on the balance sheet?
Unlisted equity investments, trading securities, htm secuities, loans/notes recievable, derivatives, avaiable-for-sale securities

Answer 4

Financial Asset Measurement Bases—U.S. GAAP

HISTORICAL COST AMORTIZED COST FAIR VALUE
Unlisted equity investments Held-to-maturity securities Trading securities
Loans and notes receivable Available-for-sale securities
Derivatives