# Unrealized Gain Loss for Held for Trading Investment

Hi,

I am confused regarding following example from curiculum

“On 1 January 2011, Baxter Inc. invested £300,000 in Cartel Co. debt securities (with a 6 percent stated rate on par value, payable each 31 December)”. The effective interest rate was 4.5%. At the end of the year the fair value of the securities is £350,000. It records 53,000 unrealized gains and 13,500 interest income on IS. I am confused why it is reporting 53000 unrealized gain/loss. Since it is a Held for Trading security carrying value was 300K. so If FV at the end of the year is 350 K then it should show 50K as Unrealized Gain/Loss. However Curriculum example 1 show it as 53K(350K -297K)  . 297K it is recognizing as carrying value for security.

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Reread the example: there’s £3,000 in amortization.

Simplify the complicated side; don't complify the simplicated side.

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I agree but Held for Trading securities are not amortized. they are reported at fair value. So th FV for HFT is 300K not 297. Are all Debt securities? I am confused on this.

Par11 wrote:
I agree but Held for Trading securities are not amortized.

You’re mistaken: the premium or discount on a held-for-trading bond can be amortized.  That’s exactly what they did here.  Reread the example.

Par11 wrote:
they are reported at fair value. So th FV for HFT is 300K not 297.

I’m not disputing that.  Nobody said that the fair value is 297,000.  The original price less amortization is 297,000.

Par11 wrote:
Are all Debt securities?

I don’t understand the question.  Are they … what?

Simplify the complicated side; don't complify the simplicated side.

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http://financialexamhelp123.com/

Essentially everything should be balanced. Interest income is 13.5 but actual cash RCVD is 16.5. 13.5 sits in p&l under interest income and 3 should go towards principal repayment thereby reducing o/s to 297000.