Financial Instruments

Question 1

How are trading debt securities recorded on the B/S and how are the gains or losses recorded?

Answer 1

They are recorded at fair value on the B/S with holding gains/losses included in Net income

Question 2

What is the difference between trading securities, available for sale securities, and held to maturity

Answer 2

Trading: for sale in the next 12 months, bought with the intent of generating profits on short term

AFS: in between - can be either current or noncurrent assets

Held to maturity: Intent to hold to the maturity date

Question 3

What are debt securities

Answer 3

Any security representing a creditor relationship with an entity

Question 4

Formula for CECL model, expected credit loss and where is this recorded

Answer 4

The credit loss (impairment) amount is the difference between the amortized cost and the present value of expected cash flows, and this loss hits the income statement.

Question 5

When is a credit loss recognized on an AFS debt security?

Answer 5

If the fair value (FV) of the debt security is below the present value (PV) of expected future cash flows, and the PV is below the amortized cost

Question 6

How to calculate the additional unrealized loss of an AFS debt security and where is it recorded

Answer 6

Difference between present value and fair value is recorded in OCI.