Say you have a passive investment in a security that you buy for 10M. At year end, its market value dropped to 8. Assume dividends were 1M, which you already added to your NI so that’s taken care of. So the Q is how to account for MV drop (or gain): If AFS: - Nothing on I/S - 2M loss in OCI on B/S If Trading: - 2M loss on I/S - What about B/S? I realize that B/S shouldn’t be affected, but won’t the 2M loss flow into R/E and thus S/E? So if a question is given on AFS vs. Trading doesn’t this mean that B/S treatment will actually be the same (or at least economically they will be the same)?
ending total equity will be the same - however, the way you got there will be different - Trading, as you pointed out, will have the losses within retained earnings - AFS will have the loses in OCI
got it, thanks. in short, balance sheet economic effect on shareholders equity is actually the same, just different accounts within s/e.
yep, you got it