Q1] In HTM investment that have been impaired, the amt of loss is measured as difference between security CV(base on amortize cost) and present value of it estimated future cashflow discountedat effective interest rate computed at initial. my question is what is the different in cv(amortize cost) & pv, if you see amortize table both result in same amt?
Q2] asset is impaired when cv exceed recoverable cost permanently, then why we recognize subsequent recovery if it exceed permanently
Q3] If we classify security as a AFS/HTF then they are recognize at fair value, if we recognize at fv then why we are concern about the amorization of discount/premium, in curruculam example is given that $300000 invested amt, par value is $275000 at 6% and 4.5% is a market rate invested at 2011(beg) amortize cost for 11,12,13 are 297000, 293865, 290589, and fair value at the end of 2011 is 350000 If the securities is classified as HTF in income statement they have recognize of interest income of 13500{16500[coupon]-3000[amortize of premium]} and reported $53000 unrealize gain{350000-297000}[why not 50000 unrealize gain{350000-300000}] and in balancesheet 350000{which is reported at fair value} at the end of 201. Why we are concern with amorization of discount/premium, what is the use of amortize table if we know we have to recognize at fair value at the end, while this is not the case with htm security.
Q4] {For Reclassification} Under U.S.GAAP if the security is initially classified at HFT and reclassified at AFS it’s unrealize gain/loss is{it carring value & current fair} [don’t you think that it should be same because both are recorded at fair value and as the securtiy (debt) is same but classification is depend upon investor to investor either HTM/AFS/HFT] are recognize at profit/loss[why not in OCI as it is reclassified to AFS]
1- where are you getting this from? CFA books? THe amortized cost is based on the beginning bond investment (which might not be the same as face value) and the marekt rate at issuance (not necessarily the same as coupon rate) , so the present value and the amortized value should be different is different rates are used.
We only recognize recovery in IFRS, up to the amount impaired, not above
For Held for trading - changes in fair value both realized and unrelazed are recognized. when you recognize unrealized you teke the beginning bond investment +/- the discount/amort vs the fair value on your balance sheet.
I’m not quite sure what you mean here, but I’ll take a stab at it. You buy a bond for $1,100 and start amortizing the $100 premium over the bond’s remaining life. Two years later something happens and you believe that the bond is impaired: you figure that they’re going to miss two coupon dates, then resume paying, so you discount those expected cash flows to get the PV. The new expected cash flows are different from the original expected cash flows (which didn’t include missing two coupon payments), so the values will be different.
When you impair something, you think that the impairment is permanent. But nobody – not even Bob Cassidy – can predice the future with certainty. Something may happen later that increases the value of the asset, and under IFRS you can acknowledge that and write it back up.
That’s just the way accountants do it. We’re stuck with it.
A held-for-trading security has its unrealized gains/losses go through the income statement. If you reclassify it as available-for-sale, then there’s nothing to transfer to OCI: the unrealized gains/losses have already been recognized. You start fresh with an AFS security and nothing in OCI and go from there.
1} yes it is from CFA curriculam, it is said that in impairment loss is difference between cv(carring value)& pv(future case flow discounted base on interest rate at initiation) if you see amortize table of bond carefully you will find that cv at the end of year is simply equal to pv of future case flow discounted at same interest rate. so my question is what is the difference between them?
2} i got the 2nd one that,impairement loss is cause due to drastically decrease in faire value & unrealized gain & loss is due to small changes in faire value, it is not about only recovery ,but it is about, if decrease in fair value permanently (which we define as impairment) then why we subsequent recovery, if it recovery (no permanently) then it is not impairment…
3} see the example in curriculam or schweser example, when security is treated as HFT/AFS then they have considered amoritization of premium/discount in p&l/oci, my question is if we recognize at fair value then why we are considered about amort?..
4} see the U.S GAAP reclassification, reclassification from HFT to AFS it unrealize g/l is recognize in p&l not in oci, my question is if we reclassification any thing to AFS then we recognize in OCI but not in p&l, but in above one i don’t understand why in p&l…