Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide

SUMMARY

• Available-for-sale securities are debt or equity investments that are held for an indefinite period of time without any intention to resell for profit. They are not trading assets as in the case of short-term assets held for speculation nor are they acquired with an intention to hold until maturity.
• While available-for-sale securities are recorded at fair value or market value, the unrealized gains/losses on them are excluded from current earnings (P&L) and are instead recorded as an adjustment to bonds on the balance sheet.
• The available-for-sale category includes all bond securities except those classified as fair value through profit or loss and under held-until-maturity. Available-for-sale financial assets are carried at fair value subsequent to initial recognition.
• For available-for-sale financial assets, unrealized gains and losses are deferred until they are realized or impairment occurs. The unrealized gains on such financial assets are shown as other comprehensive income and adjusted directly in the bond/investments (net amount) under a separate component of shareholders’ equity without being routed through the income statement. When the bonds are sold the gains/losses realized are reported in the income statement. Only interest income and dividend income, impairment losses, and certain foreign currency gains and losses are recognized in profit or loss.
• As per the accounting standards, available-for-sale financial assets are those non-derivative financial assets ...