According to CFAI book pg 14.
“If a security initially classified as held for trading is reclassified as available-for-sale, any unrealized gains and losses (arising from the difference between its carrying value and current fair value) are recognized in profit and loss”
Why is it recognized in PnL and not in Other Comprehensive income?
Thanks
IFRS rules?
If I remember well, derivatives and FX gains and losses are mostly recognized in OCI.
Unrealized gains and losses on held-for-trading securities are recognized in profit and loss.
When you reclassify a held-for-trading security as available-for-sale, you have to reclassify it at its current market value. Therefore, you recognize any unrealized gain or loss _ while it is still classified as held-for-trading _, then reclassify it.
Was looking for this exact same question. Thank you Bill!
But now I have another question. Why then from AFS to HFT the unrealized gain/loss is reversed from OCI to IS? Following the same logic, wouldn’t that unrealized gain/loss stay in the OCI? EDIT: Found another link with the response: https://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91311241 I think it is the way it is. No logic behind.
because future fluctuacions in price would be recorded in P&L and The unrealized G/L that you had in OCI is related to The Securities you are reclassifying, so you can’t just leave that unrealized G/L in OCI. Hope you understand, is hard to explain by writing