Financial Assets and their measurement bases

I refer to one of the article written by S2000magician :http://financialexamhelp123.com/investments-in-financial-assets/

It’s informative and helpful. However, I have a question that I wish to clarify:

Let us consider trading securities (" TS")- Considering a hypothetical example when a firm purchase a security at $100. The fair value for the security is $150 and $120 at the end of year 1 and year 2 respectively.What will be the carrying value (balance sheet value) for each period?

Carrying Value($100)

Year 0: 100

Year 1: 150 - any charges (impairments?amortization?)

Year 2: 120 - any charges (impairments? amortization?)

I cannot see the rationale behind if 150 (in Y1) should be the carrying value at the start of Y1 (i.e. 100) instead.

It has been mentioned that TS _ will be reported on the balance sheet _ at fair value. Does the phrase " will be reported on the balance sheet" refer to the initial reporting only (when the securities is purchased) or every reporting? I’m confused but I’m quite sure that the carrying values we see on the balane sheet is value after some charges (e.g. impairments,amort) irregardless of whether the asset is reported at amortized cost or fair value.

Can someone explains to me?

Thanks a lot!

Cheers,

Ernest

At every balance sheet date trading securities and available-for-sale securities are reported at fair market value.

So, in your example, at the end of year 1 (the balance sheet date) the security would be reported at 150; at the end of year 2 it would be reported at 120.

Thanks.

How will be the unrealized gains/losses be computed for end of year 1 and year 2 respectively?

For year 1, 50 (= 150 – 100); for year 2, -30 (= 120 – 150).

Awesome! Thanks S2000magician :slight_smile:

You’re welcome.

Where will the gains be presented? On the income statement as non operating gains/losses? operating gains/losses? Statement of Comprehensive Income?