[Anonymous]

Hi all, I was doing homework questions, and it seems to me that :

for trading securities, the realized G/L when you are selling the trading securities dosen’t equal to the difference between the sales price and the original cost of the securities. It is the difference between Yr 1 and Yr2 FV.

What about for available for sale or held to maturity securities? For these two, realized G/L = sale price – cost(amortized for HTM)?

Anyone can help?

thanks!

[Anonymous]

The best way to view this type of problem is with a T account.

For example, If the original cost of the Trading security is 100,000, and at the end of year it's 80,000, then there is a realized loss of 20,000. You would book this in entry into the I/S and the valuation account for the security.

Now at the end of the second year, the value is 50,000. So you now need the net value of security to equal 50,000. The cost cant change so you can only adjust the valuation account. The valuation account already has 20,000 sitting in it and you need it to equal 50,000. This requires an entry of 30,000 which goes to the I/S.

You must adjust the account year to year and it should net out to the FV at the current time.

Hope this makes sense and if I explained it poorly, feel free to correct me.

[Anonymous]

The best way to view this type of problem is with a T account.

For example, If the original cost of the Trading security is 100,000, and at the end of year it's 80,000, then there is a realized loss of 20,000. You would book this in entry into the I/S and the valuation account for the security.

Now at the end of the second year, the value is 50,000. So you now need the net value of security to equal 50,000. The cost cant change so you can only adjust the valuation account. The valuation account already has 20,000 sitting in it and you need it to equal 50,000. This requires an entry of 30,000 which goes to the I/S.

You must adjust the account year to year and it should net out to the FV at the current time.

Hope this makes sense and if I explained it poorly, feel free to correct me.

[Anonymous]

thanks baebae. i understand what you are saying. but my question is how do you account it for available for sale or htm securities? i think i saw on the book that realized loss for afs securities is sales – cost rather than fv yr2 minus fv year 1.

anyone can explain?thanks

[Anonymous]

thanks baebae. i understand what you are saying. but my question is how do you account it for available for sale or htm securities? i think i saw on the book that realized loss for afs securities is sales – cost rather than fv yr2 minus fv year 1.

anyone can explain?thanks

[stoleway]

It will be better to explain it with numbers. ..Post an example and I can be able to help you with it

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[stoleway]

It will be better to explain it with numbers. ..Post an example and I can be able to help you with it

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[Anonymous]

For AFS, the only thing you do different is book it to OCI instead of the I/S. Everything else is the same with my example.

For HTM, you ignore FV since your amortizing the discount/premium over the life of the loan. HTM is basically treated as a bond.

When you sell an AFS security, you take the selling price and the difference and calculate the gain/loss. The prior unrealized G/L is reclassified from OCI. You cant forget about the OCI unrealized gain/loss or else it will be counted twice.

[Anonymous]

For AFS, the only thing you do different is book it to OCI instead of the I/S. Everything else is the same with my example.

For HTM, you ignore FV since your amortizing the discount/premium over the life of the loan. HTM is basically treated as a bond.

When you sell an AFS security, you take the selling price and the difference and calculate the gain/loss. The prior unrealized G/L is reclassified from OCI. You cant forget about the OCI unrealized gain/loss or else it will be counted twice.

[Author]

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