carrying value

I was doing one of the practice topic tests on the CFA Candidate Resources webpage, specifically Turner, and one of the questions asked what the carrying value of the fixed income portfolio was. In this portfolio were four bonds. One classified as held for trading, the other as available for sale and the last two at held to maturity

I was always under the impression that carrying value was the original cost of the asset minus any premium or discount regardless what it is classified as but apparently I’m wrong. Does carrying value have more than one definition?

I believe that those bonds are trading at par value

true but the correct answer was to carry the held for trading and available for sale bonds at market value which I don’t understand. The definition of carrying value I thought was original cost - amortization but carrying value has different definition depending on how you classify the investment. I just learned this.

FVPL (Held for Trading) are carried at Fair market Value, so whatever the price is. Changes in FV flow into NI. Think of it as held for trading is if you are considering that your business (“trading”), hence changes in value affect your bottom line (NI).

AFS are carried also at FV, but changes in FV flow into OCI and are reclassed into NI once you sell.

HTM investments, (hence Fixed income securities) are carried at amortized cost, so Historic Cost - Premium/Discount amoritzation using effective interest rate method.

Why is the carry amount not written down at year end for Gilt?

They missed a payment which is objective evidence an impairment has taken place.

They’re asking for the value at year end which is the end of the reporting period.

PV of expected CFs should be lower since 2nd payment in the year is missing.

Am I missing something here? Because of that POS topic test i’m second guessing myself right now.


jyk026 I have a big red flag next to this one too. This affects question 5 too, they have included the missed coupon payment on P&L…

In addition, shouldn’t the inter-company sale for Q2 offset associate income? or is it effectively ignored because the size of transaction is equivalent to a rounding error on the total income?