Financial instruments can be found on the asset side and the liability side of the balance
sheet.
Financial assets include investment securities (stocks and bonds), derivatives.
loans, and receivables.
Financial instruments arc measured at historical cost, amortized cost, or fair value
Financial assets measured at amortized cost arc known as held-to-maturity securities.
Held-to-maturity securities are debt securities acquired with the intent to be held
to maturity.
Financial assets measured at fair value. also known as mark-to-market accounting.
include trading securities, available-for-sale securities and derivatives.
Trading securities (also known as held-for-trading securities) arc debt and equity
securities acquired with the intent to profit over the near term. Trading securities arc
reported on the balance sheer at fair value, and the unrealized gains and losses (changes
in market value before the securities are sold) arc recognized in the income statement.
Unrealized gains and losses arc also known as holding period gains and losses. Derivative
instruments arc treated the same as trading securities.
Available-for-sale securities are debt and equity securities that arc not expected to
be held to maturity or traded in the near term. Like trading securities. available-forsale
securities arc reported on the balance sheet at rair value. However, any unrealized
gains and losses arc not recognized in the income statement, but arc reponed in other
comprehensive income as a part of shareholders' equity.
For all three classifications of securities, dividend and interest income and realized gains
and losses (actual gains or losses when the securities arc sold) arc recognized in the
income statement.
Please note the distinction in unrealized vs realized for the above mentioned securities.
sheet.
Financial assets include investment securities (stocks and bonds), derivatives.
loans, and receivables.
Financial instruments arc measured at historical cost, amortized cost, or fair value
Financial assets measured at amortized cost arc known as held-to-maturity securities.
Held-to-maturity securities are debt securities acquired with the intent to be held
to maturity.
Financial assets measured at fair value. also known as mark-to-market accounting.
include trading securities, available-for-sale securities and derivatives.
Trading securities (also known as held-for-trading securities) arc debt and equity
securities acquired with the intent to profit over the near term. Trading securities arc
reported on the balance sheer at fair value, and the unrealized gains and losses (changes
in market value before the securities are sold) arc recognized in the income statement.
Unrealized gains and losses arc also known as holding period gains and losses. Derivative
instruments arc treated the same as trading securities.
Available-for-sale securities are debt and equity securities that arc not expected to
be held to maturity or traded in the near term. Like trading securities. available-forsale
securities arc reported on the balance sheet at rair value. However, any unrealized
gains and losses arc not recognized in the income statement, but arc reponed in other
comprehensive income as a part of shareholders' equity.
For all three classifications of securities, dividend and interest income and realized gains
and losses (actual gains or losses when the securities arc sold) arc recognized in the
income statement.
Type of Security
|
Unrealized Gain
|
Realized Gain
|
Held to Maturity
|
Balance
Sheet(amortised value - this means the decrease/increase in value will not be reflected in the balance sheet, the original value will be)
|
Income
Statement
|
Trading Securities
|
Balance
Sheet(Fair Value), Income Statement
|
Income
Statement
|
Available for Sale Securities
|
Shareholders
Equity Statement(other Comprehensive Income)
|
Income
Statement
|
Please note the distinction in unrealized vs realized for the above mentioned securities.
