Marketable Securities

Question 1

What type of securities does Trading Securities contain?

Answer 1

Stocks and Bonds

Question 2

Where do you record unrealized gains and losses for trading securities?

Answer 2

income statement under operating activities

Question 3

Where do you record realized gains and losses for trading securities?

Answer 3

income statement

Question 4

Does available for sale securities also contain debt securities along with equity securities?

Answer 4

Yes. It contains both.

Question 5

Do you record unrealized gains and losses for available for sale securities? If so, where?

Answer 5

Yes. They appear on the balance sheet as part of Comprehensive income in the equity section.

Question 6

What is accumulated other comprehensive income?

Answer 6

Cumulative amount of unrealized gains or losses.

Question 7

What is the allowance account for marketable securities?

Answer 7

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.

Question 8

What are trading securities? How are these recorded and where?

Answer 8

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.

Question 9

What are available for sale securities? How are these recorded and where?

Answer 9

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.

Question 10

Where do you record realized gains or losses for available for sale securities?

Answer 10

In the income statement along with interest and dividend income.

Question 11

Which part of the cash statement will trading, securities, available for sale, and held to maturity be recorded?

Answer 11

Trading securities will be in operating activity, available for sale in investing activity, and held to maturity in the investing activity.

Question 12

When does one recognize an impairment loss on marketable securities? Does this apply to trading securities too?

Answer 12

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.

Question 13

How are impairments recorded?

Answer 13

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.

Question 14

What is the process for the reclassification from HTM to AVS?

Answer 14

Reclassify at FMV. Then record in OCI.

Question 15

What is the process for the reclassification from AVS to HTM?

Answer 15

Reclassify at FMV. Then record unrealized holding gain/loss in B/S part of comprehensive income and amortized over remaining life of the security.

Question 16

What are HTM securities? How are these recorded?

Answer 16

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.

Question 17

How are unrealized gains/losses treated under FMV?

Answer 17

These are recorded in the income statement.

Question 18

How are HTMs treated under FMV?

Answer 18

The carrying value is adjusted to FV on each balance sheet date with increase/decrease recognized as component of income.

Question 19

How does IFRS define a financial asset?

Answer 19

Cash, equity instrument of another entity, contractual right, contract that will be settled in entity’s own equity instruments.

Question 20

How are financial assets measured under IFRS?

Answer 20

Fair Value through Profit or Loss. The increases/decreases are reported in the statement of operations/income statement

Question 21

When are financial assets measured at amortized cost?

Answer 21

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.

Question 22

Are impairment losses recoverable under IFRS? What about GAAP?

Answer 22

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.