Valuation of Debt Securities Based on Intent

Name: Valuation of Debt Securities Based on Intent
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Author: Chloe Martinez

Study on debt security valuation and the impact of investor intent on pricing.

Chloe Martinez

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30 days ago

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Valuation of Debt Securities Based on Intent
"Discuss the classification and valuation of debt securities, focusing on the differences between
'Held-to-Maturity,' 'Trading,' and 'Available-for-Sale' securities. Include an analysis of how
unrealized gains and losses are treated in each category and provide examples to illustrate their
impact on the balance sheet and income statement. Additionally, explain the key circumstances
under which securities might be transferred or sold from the Held-to-Maturity category.
Word count requirement: 800-1000 words.

Introduction
Entities account for investments based on:
The type of security (debt or equity) and
Their intent with respect to the investment
In case of debt securities, when the management has no intention to sell, then debt securities are
valued at Amortized cost and when the management has the intention to sell, then debt securities
are valued at Fair-value.
In relation to Debt securities, the classification from an accounting point of view is done in three
categories:
 Held-to-maturity
 Trading
 Available-for-sale
Category Valuation Unrealized Holding
gains or losses
Other income
effects
Held-to-maturity Amortized cost Not recognized Interest when
earned; gains and
losses from sale
Trading securities Fair Value Recognised in net
income
Interest when
earned; gains and

losses from sale
Available-for-sale Fair Value Recognized as other
comprehensive
income and as
separate component
of stockholder’s
equity
Interest when
earned; gains and
losses from sale.
Held to maturity securities
If an entity has both the positive intent and the ability to hold debt securities to maturity, they are
measured at amortized cost. In general transfers to or from this category are not permitted. In
those rare circumstances when there are transfers or sales of securities in this category,
disclosure must be made in the notes for each period for which the results of operations are
announced.
(1) Amortized Cost
(2) Realized or unrealized gain or loss.
(3) Circumstances leading to the decision to sell or transfer.
Isolated, non-recurring, and unusual events that could not have been reasonably anticipated may
cause a sale or transfer without calling intent or ability to hold into question. Other changes in
circumstances that are not considered inconsistent include:
(1) Material deterioration in creditworthiness of the issuer.

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Finance

Valuation of Debt Securities Based on Intent

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