Marketable Securities Flashcards
What type of securities does Trading Securities contain?
Stocks and Bonds
Where do you record unrealized gains and losses for trading securities?
income statement under operating activities
Where do you record realized gains and losses for trading securities?
income statement
Does available for sale securities also contain debt securities along with equity securities?
Yes. It contains both.
Do you record unrealized gains and losses for available for sale securities? If so, where?
Yes. They appear on the balance sheet as part of Comprehensive income in the equity section.
What is accumulated other comprehensive income?
Cumulative amount of unrealized gains or losses.
What is the allowance account for marketable securities?
It keeps track of the adjustments made to the available for sale securities. These will be cleared out only if every available for sale securities are sold.
What are trading securities? How are these recorded and where?
These are stocks and bonds that held for short term with intentions to make profits. They are recorded at cost and carried at FMV on the balance sheet under current assets.
What are available for sale securities? How are these recorded and where?
These are stocks and bonds that are held with intentions to hold them for a longer period and are likely to be sold one day. They are recorded at cost and carried at FMV on the balance sheet under non-current assets.
Where do you record realized gains or losses for available for sale securities?
In the income statement along with interest and dividend income.
Which part of the cash statement will trading, securities, available for sale, and held to maturity be recorded?
Trading securities will be in operating activity, available for sale in investing activity, and held to maturity in the investing activity.
When does one recognize an impairment loss on marketable securities? Does this apply to trading securities too?
Impairment losses will apply to available for sale and held to maturity. For AVS, impairment occurs when there is a decline in value that is not temporary. For HTM, if there are reasons for that the principal and interests will not be fully paid. This does not apply to trading securities.
How are impairments recorded?
The impairment will be recorded out of OCI and recognized as a loss in calculating net income. This loss is realized loss in the income statement and remaining balance will be new cost.
What is the process for the reclassification from HTM to AVS?
Reclassify at FMV. Then record in OCI.
What is the process for the reclassification from AVS to HTM?
Reclassify at FMV. Then record unrealized holding gain/loss in B/S part of comprehensive income and amortized over remaining life of the security.
What are HTM securities? How are these recorded?
These are debt only securities held until it matures. These are recorded at cost and are carried at amortized cost. These will be split between current and non-current depending on when they are due.
How are unrealized gains/losses treated under FMV?
These are recorded in the income statement.
How are HTMs treated under FMV?
The carrying value is adjusted to FV on each balance sheet date with increase/decrease recognized as component of income.
How does IFRS define a financial asset?
Cash, equity instrument of another entity, contractual right, contract that will be settled in entity’s own equity instruments.
How are financial assets measured under IFRS?
Fair Value through Profit or Loss. The increases/decreases are reported in the statement of operations/income statement
When are financial assets measured at amortized cost?
Only under 2 conditions: 1) entity’s business model is to hold the asset to collect scheduled cash flows 2) terms of instrument call for cash flows that are exclusively payments of principal and interest on specified dates.
Are impairment losses recoverable under IFRS? What about GAAP?
Yes, but it may not increase above the amount that would’ve been recorded at its amortized cost if impairment had not been recognized. This cannot be done in GAAP.
