Marketable Securities Flashcards
Trading Securities (HFT - Held for Trading)
Investments in equity instruments, such as stocks, options, rights warrants or debt instruments, such as bonds, which the investor has acquired in an attempt tomato profits by buying and selling within a short period of time. Normally classified as current assets.
Available-For-Sale (AFS/AVS)
All investments in marketable equity or debt instruments that do not fit the definitions of HTM or trading securities. May be classified as current or non-current assets, deepening on the expected date of sale.
Held-To-Maturity (HTM)
Investments in bonds and other debt instruments which the investor has the ability and intent to hold until the due date for repayment. Classified as concurrent assets (unless the maturity date is less than one year from the balance sheet date)
Trading Securities are…
- Current assets on the balance sheet if operation and concurrent if investing
- include both debt and equity securities (bonds & stocks)
- initially recorded at cost, but carried at FMV (ASC 320)
- Any unrealized gains and losses (temporary) appear on the income statement
- Realized gains and losses are always on the income statement along with interest and dividend income
Available for sale securities are….
- current or noncurrent (if holding period is indefinite, assume concurrent)
- include both debt and equity securities
- initially recorded at cost, but carried at FMV (ASC320)
- Any unrealized gains and losses appear on the balance sheet as part of Comprehensive Income in the stockholders’ equity section. The cumulative amount is called accumulated other comprehensive income.
- Realized gains and losses are always on the income statement as well as interest and dividend income.
- The acquisition and disposal of AFS investments is an investing activity on the statement of cash flows.
Reclassifications between trading securities and AFS securities
Treat as if they are being sold from the portfolio they are leaving, then repurchased at the current market price into the portfolio they are entering. Current market price is used to determine the transfer.
- Reclassify at FMV
- The difference is treated as a realized gain/ loss on the income statement
- Eliminate any related valuation allowance accounts.
Reclassification between Held to Maturity and AFS
- reclassify at FMV
- If HTM to AFS’s then record in other comprehensive income (OCI)
- If AFS to HTM then the unrealized holding gain/ loss is reported on the B/S as part of comprehensive income and amortized over the remaining life of the security.
Held to Maturity (HTM) securities are….
- non-current unless maturity date is less than one year from the balance sheet date
- bonds only (no stocks)
- record at cost
- carry at amortized cost (face net of unamortized discount or premium)
- unrealized gains/ losses - not applicable
- realized gains/ losses shouldn’t happen but could
- report interest income net of amortization on the Income Statement
- investing activity on the statement of cash flows
- considered held to maturity if sale occurs after at least 85% of principle has been collected.
Financial Instrument (IFRS)
Any contract that results in a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial Asset (IFRS)
- Cash
- An equity instrument of another entity
- A contractual right:
- to receive cash or another financial
asset - To exchange financial assets or financial
liabilities with another entity on potentially
favorable terms
- to receive cash or another financial
- a contract that will be settled in the entity’s own equity instruments
Financial Liability (IFRS)
- A contractual obligation
- to deliver cash or another financial asset
to another entity. - To exchange financial assets or financial
liabilities with another entity on
potentially unfavorable terms.
- to deliver cash or another financial asset
- A contract will be settled in the entity’s own equity instruments.
