Investments in Debt and Equity Securities
Debt securities: represent creditor relationship
Equity securities: represent ownership interest
Equity securities: represent ownership interest
Investments in Equity Securities
1. more than 50% of voting power
–> prepare consolidated financial statements
–> prepare consolidated financial statements
2. 20% or more, but no more than 50%
–> equity method accounting
–> equity method accounting
3. less than 20%
–> classified as either (a) or (b)
(a) trading securities
(b) available for sale securities
–> classified as either (a) or (b)
(a) trading securities
(b) available for sale securities
Investments in Debt Securities
1. Held-to-maturity securities
–> intent and ability to hold until maturity
–> intent and ability to hold until maturity
2. No intent or ability to hold until maturity
–> classified as either (a) or (b)
(a) trading securities
(b) available for sale securities
–> classified as either (a) or (b)
(a) trading securities
(b) available for sale securities
Trading Securities
Characteristics
(a) “active and frequent” buying and selling
(b) profits on “short-term price differences”
(b) profits on “short-term price differences”
Available for Sale (AFS) Securities
Securities not classified as either (a) or (b)
(a) Trading Securities
(b) Held-to Maturity (HTM) Securities
(b) Held-to Maturity (HTM) Securities
Measurement of Investments in Securities
1. Trading Securities: Fair Value
2. AFS Securities: Fair Value
3. HTM Securities: Amortized Cost
2. AFS Securities: Fair Value
3. HTM Securities: Amortized Cost
Changes in Fair Value: Unrealized holding gains or losses
1. Trading Securities: recognized in earnings
2. AFS Securities: recognized in Other Comprehensive Income (OCI), not in earnings
3. HTM Securities: not recognized
2. AFS Securities: recognized in Other Comprehensive Income (OCI), not in earnings
3. HTM Securities: not recognized
Impairment of AFS and HTM Securities
If the decline in fair value is “other than temporary”
–> recognize impairment losses in earnings
–> recognize impairment losses in earnings