Question

In: Accounting

Discuss the similarities and differences in reporting trading securities, available-for-sale securities and held-to-maturity securities.

Discuss the similarities and differences in reporting trading securities, available-for-sale securities and held-to-maturity securities.

Solutions

Expert Solution

Trading security (TS), Available for sale (AFS),Held to maturity (HTM)

Difference

Trading security (TM)   

  • Hold only for short period .
  • Purchase with intention to make short term profit.
  • Mainly hold for less than 12 months.

Available for sale

  • Not to be hold till maturity.
  • Purchase with an intention to maintain liquidity and earn interest
  • Hold for more than 12 months

Held to maturity

  • Hold till maturity
  • Purchase with an intention to hold security till maturity to earn fixed amount
  • Held to maturity security are debt beacuse equity securities don't have fixed maturuma period.

Similarities

Trading security

  • Security can be in equity or debt form
  • Reported at fair value (includes unrealised gains and loss are included in earning)

Available for sale

  • Security can be in form of equity and debt
  • Reported at fair value( unrealized gains and loss are reported separately in shareholder's equity)

Held to maturity

  • Only in debt form
  • Report at amortized cost.

ekkarill92 answered 10 months ago
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