Held for trading; available for sales and designated at fair value

CFA Level II
#1

Can anyone pls confirm that for stocks:

held for trading: dividend income reported on IS, unrealized gain loss also reported on IS

available for sale: div income on IS, unrealized gain loss to BS under CI

designated fair value: same as held for trading

yes? Anything else related to this matter?

#2

for stocks seems ok

#3

Nit picking here, but for exam purposes HTM is only for bonds so dividends are not applicable, only coupon interest.

More importantly is the interest income would be (amortized carrying value * market rate at time of purchase) and NOT (face value * coupon).

Someone correct me if Im wrong on the last point.

#4

Oh yeah, also unrealized g/l is ignored in HTM. Again, would greatly appreciate if someone could correct me if wrong.

#5

yup, all seem correct, only question I have is how do we classify between Held for trading vs. Designated @ fair value.

#6

its correct as far as i know

#7

Correct me if i’m wrong, but I believe this is simply a matter of choice for the firm

#8

Correct.

Held-for-trading is intended to mean securities you plan to trade short-term. Designated-at-fair-value has the same treatment as trading securities (e.g., unrealized gains and losses go through the income statement), but is applicable to securities you plan to hold for a long while.

#9

so basically for stocks, all dividend receveid will be on IS for all classifications?

#10

Yup.

#11

Nit picking aswell

Available for Sale:

IFRS FX gains and losses will go in the I.S

GAAP FX gains and losses will go in Share holders equity under OCI.

#12

Can we reverse impairment losses for AFS in IFRS ?

#13

Under IFRS yes, under GAAP no.

#14

Watch out guys : under IFRS, in the case of equity instruments calssified as AFS, the reversal CANNOT BE DONE via P&L. You can therefore show an increase in value but must treat it as any standard increase in value (goes to OCI). Effectively the reversal in P&L cannot happen.

There are no such constraints in respect of debt instruments (classified as AFS)

#15

Thats what i was asking wojtek we can reverse equity impairment in IFRS but has to go to OCI

In scswer it says reveral cant happen

#16

Bad5shah,

Under IFRS for AFS financial assets you must distinguish between investments in debt and equity instruments:

  • for debt instruments (deemed to be monetary assets), the FX gain/loss is indeed taken to the I/S.

  • for equity instruments (deemed to be non-monetary assets), the FX gain/loss is taken to O.C.I. (along with the change in fair value).

This is also stated at the bottom of pg 109 of the L2 FRA book.

regards

#17

Vicky, this is just a case of wording. Under IFRS AFS equity impairment loss reversal cannot happen, i.e. you cannot reverse the loss taken to the I/S. But there is nothing to stop you reversing the fall in value presented on the balance sheet.

#18

ok so in IFRS we can reverse impairment by increasing OCI

#19

Ok in IFRS it is NOT allowed to switch in/out designated @fair and out of trading, but GAAP allow these. Whats the logic behind these rules?

#20

Jaychou, following changes made in 2008, IFRS actually allows you to take instruments out of the ‘held for trading’ category (in specific circumstances). It does not permit transfers out of the ‘designated as at fair value through profit or loss’ category. This issue has more to do with politics than with logic … it was one of the hotest accounting topics of late 2008.