You can thank me now!
^ weeell, we’re still not on the same page for AFS, cuz I don’t think you are supposed to acknowledge amortization of premium/discount at all. As I mentioned a couple times already, I think all you do for an AFS, in terms of what goes to OCI, is cumulatively add/subtract the difference between purchase price and market value. And as for the interest income, I think it = the interest you receive, likewise with the dividend. and other than the interest payment which is equal to the interest income, the IS would only be affected by an AFS in 2 circumstances: 1. if you are reporting under IFRS, you also include unrealized FX gains/losses (like if you are an American company that owns a French bond, you would report your gain/loss attributale to currency exchange rates on the IS). This is not done under GAAP. 2. There is asset impairment, in which case you pretty much need to recognize a loss equal to the difference between the purchase price and market price of the security, which would also clear out OCI. I think this dead horse has been beaten to death
OK, What do you do with the difference between the coupon payment and interest income? (you acknowledged that they are not the same if the security is not purchased at par). Where does it go? Question: the coupon is 6% market yield is 4.5%, face value $275k, mkt value $300k, y/e mkt value $350K At y/e: HTM: I/S interest income = $13,500, B/S at $297,000 (get this?) HFT: I/S interest income = $13,500; $53,000 unrealized Gain, B/S @ mkt value of $350k AFS: I/S interest income = $13,500; B/S @ mkt value of $350k, OCI $53,000 unrealized gain (net of tax). EDIT: do you see where is $3,000 going? (which is the difference between coupon and interest?) I’m not going to stop you from committing suicide, in fact, I’ll be happy if you want to learn incorrect stuff. I am just trying to help here. That’s it, I won’t address this anymore. Have fun!
Iginla2010 Wrote: ------------------------------------------------------- > OK, What do you do with the difference between the > coupon payment and interest income? (you > acknowledged that they are not the same if the > security is not purchased at par). > > Where does it go? > > Question: the coupon is 6% market yield is 4.5%, > face value $275k, mkt value $300k, y/e mkt value > $350K > > At y/e: > HTM: I/S interest income = $13,500, B/S at > $297,000 (get this?) > > HFT: I/S interest income = $13,500; $53,000 > unrealized Gain, B/S @ mkt value of $350k > > AFS: I/S interest income = $13,500; B/S @ mkt > value of $350k, OCI $53,000 unrealized gain (net > of tax). > > EDIT: do you see where is $3,000 going? (which is > the difference between coupon and interest?) > > I’m not going to stop you from committing suicide, > in fact, I’ll be happy if you want to learn > incorrect stuff. I am just trying to help here. > That’s it, I won’t address this anymore. > Have fun! Dood, just calm down. There are a lot of things worth getting worked up over in life, but I promise you that this isn’t one of them. I didn’t even say you’re wrong, I’m saying the way I think AFS based on what I’ve learned is different than what you’re describing, and I’m only feeling about 70% confident in what I’m saying, which is why I’m going to look in the book when I get home. Actually tomorrow, cuz tonight the gf is coming over for some super sensual Valentines Day dinner, wine, movie, and doing it. But I digress… If you look at the context in which I said interest payment does not equal interest income, it was with respect to H2M, and I maintain that view, that’s fine. But in AFS, I do think that the interest payment would be the interest income you would report on the IS, but again, I’m gonna go back to my books and confirm that view. As for the problem you’ve layed out, I’m going to assume you did H2M right since we didn’t disagree on how those are handled. I’m seeing that we also disagree with HFT now; you need to recognize the unrealized gain, and I am 100% sure about that. I also disagree with how you handled the value of the gain, and am 90% sure about that. Here’s what I would do for HFT: HFT: I/S interest income = $16,500; also $50,000 REALIZED Gain that is reported on the IS, B/S hold security @ mkt value of $350k Here’s what I would do for AFS: AFS: I/S interest income = $16,500; B/S @ mkt value of $350k, OCI $50,000 unrealized gain (tax would have no effect since this has not gone to income yet).
^ I feel sad for you. I’m out!
glad we could be mature about this. Anyone else want to chirp in on how to deal with this?
small amendment tho, little technicality on the gain in HFT; it is unrealized, but is recognized, don’t know why I wrote realized, i think I just wanted to write RECOGNIZED i guess… Here’s what I would do for HFT: HFT: I/S interest income = $16,500; also $50,000 unrealized Gain that is reported on the IS, B/S hold security @ mkt value of $350k Here’s what I would do for AFS: AFS: I/S interest income = $16,500; B/S @ mkt value of $350k, OCI $50,000 unrealized gain (tax would have no effect since this has not gone to income yet).
magicskyfairy Wrote: > > Actually tomorrow, cuz tonight the gf is coming > over for some super sensual Valentines Day dinner, > wine, movie, and doing it. > > hilarious
I’m really not sure what the argument is over at this point and I don’t want to re-read everything again. The Trading stuff is simple we all get it. The H2M is easy too all you do is put entire interest income into your I/S, and it is amortized on the B/S. The interest income includes the premium/discount, which is I think what you are arguing about. You would never (unless @par) have interest income = cash paid (coupon). Any discount/premium reduces/increases the interest income reported on your I/S. It’s the same for A4S - you report the income the same way but the change in market value goes into OCI (equity) and is reflected on the asset side as well. So SE goes up and Assets go up. So the market value of the A4S securities are on your B/S all the time. FASB says: “Dividend and interest income, including amortization of the premium and discount arising at acquisition, for all three categories of investments in securities shall continue to be included in earnings.” Did I cover everything? Also Iginla I don’t see where you get 53,000 for OCI since the MV of the security only changed by 50,000. Your B/S does not balance.
passme Wrote: ------------------------------------------------------- > magicskyfairy Wrote: > > > > Actually tomorrow, cuz tonight the gf is coming > > over for some super sensual Valentines Day > dinner, > > wine, movie, and doing it. > > > > > > hilarious you go booyyyeeeeeee!
my take on the “53000” OCI is Fair value (350,000)-amortized cost at year end (297000)=53000
I couldn’t resist! I am amazed at how people prepare for this exam. This is really a small topic within the big picture. I just copied an example from page 128 of the CFAI text. Now all of you are welcome to challenge the CFAI and go about your business. $53,000 comes from the fact that we are accounting for $3,000 (premium) difference between the coupon payment (16,500) and the yield (13,500- recorded in I/S as interest income). For the last time: $13,500 is the INTEREST INCOME not $16,500. WOW, I am not even getting paid to do this. Do you guys touch the CFAI texts at all? EDIT: I posted this after passme’s post. passme: you understand where $53,000 comes from, others need to be spoon fed.
chill out McDouche
haha, that’s the best you could come up with. I won’t stoop to your level, I promise. You do realize that I’m trying to help here, right? If you have something concrete to post, do it or GTFO!
haha, McDouche is funny tho, I’m picturing Ronald McDonald wearing a fake tan with a popped collar, a blowout red haircut, and badass shades
anyway, I’m seeing that example now, and they do amortize it so no big deal. I never said I was sure the way I was handling was definitely right, I repeatedly said that I was open to the possibility that it was done another way, but that from what I remembered, the way I was doing it was correct. Still, it was still pretty close; I didn’t have the luxury of a textbook right beside me at the time, gotta get tha money to pay the rent. To be fair to Starbuk, you (Iginla) are kind of an arrogant twat. You’ve got a self-righteous “I own the truth, the rest of you are dumb” kind of an attitude to you. It will lower your chances of getting laid, so if I was you I’d try to take it easy on that : / Now if you ladies will excuse me, I have to freshen up cuz I have some company arriving in about 25 minutes, and I need to look my prettiest.
lower my chances of getting laid by a magicskyfairy in pink pajamas? lol you can go back to your closet now.
this might help understand the mechanics of amortization of premium/discount http://www.principlesofaccounting.com/chapter%209.htm
This has to be the most uninteresting section in all of the CFA readings. Anyone else agree?
Well I was the one who initiated this topic and my word, its gone out of all proportions. To let you all know one thing, if anyone of you can manage to get the schweser 2010 FRA book, you will have this example solved in a different manner (the way magicskyfairy was thinking initially). I have been able to go through Institute 2010 book, so not sure about it. And also FYI I am a level III passout and a faculty for FRA, so just wanted to check if anyone of you was aware of any GAAP changes. I guess the FASS transcript put up by someone was comprehensive enough to clear all the doubts. Thanks anyways for all of your contribution. hey also if anyone of you’ll have any queries on FRA, feel free to write me at “anky.09@gmail.com”