Question

17. WITHOUT CONSIDERING THE FAIR VALUE OPTION, WHAT IS/ARE THE DIFFERENCES BETWEEN ACCOUNTING FOR TRADING SECUTIRIES AND AFS SECURITIES ?

18.WHAT MUST A COMPANY ESTABLISH TO CLASSIFY AN INVESTMENT AS HTM?

Answer 1

answer to question 17-

AFS security stands for the available for sale securities. The basic differences between accounting for trading securities and available for sale securities ( apart from fair value) can be jotted down in the following manner-

	ACCOUNTING FOR
BASIS	TRADING SECURITIES	AVAILABLE FOR SALE
Total earnings	Unrealized gains and losses are included in the total earnings. They form part of the trade profit	Unrealized gains and losses are not included in the total earnings
Reporting requirements	Unrealized gains and losses have to be reported under the statement of profit and loss as a part of total earnings.	Unrealized gains and losses have to be reported in a separate component. Under the head of shareholders’ equity.

answer to question 18-

Held-to-maturity (HTM) refers to those securities that the entity purchases for an intention to hold them until their maturity. The management of the company might invest in a bond or security that they intent to hold up  to their maturity in order to reap maximum profit from them.

The company must establish the following points in order to classify an investment as held to maturity-

• A held-to-maturity investment security is totally non-derivative . That is the value of the security is not derived or dependent on any factor.

• the held to maturity security has a fixed or pre-determined or determinable payments at fixed intervals.

• Fixed time period for maturity.

• The company should be able to demonstrate the ability that the company intends to hold the securities till maturity. As in the company has sufficient liquid funds to cope up the requirements till the securities mature.

• The held to maturity accounting should be with the standard protocol. The securities investment is recorded at cost, and if any premiums or discounts exist there it shall be amortized over the total life or the life till maturity .