F3 - Marketable Securities

Question 1

On the balance sheet, marketable securities classified as trading or available-for-sale are valued…

Answer 1

At fair value

Question 2

On the balance sheet, marketable securities classified as held-to-maturity are valued…

Answer 2

At amortized cost

Question 3

How are unrealized gains/losses on trading securities recognized?

Answer 3

Unrealized gains and losses on trading securities are recognized on the income statement.

Question 4

How are unrealized gains/losses on available-for-sale securities recognized?

Answer 4

Unrealized gains and losses on availalbe-for-sale securities are reported in other comprehensive income.

Note: Under IFRS, foreign exchange gains and losses on available-for-sale debt securities are reported on net income.

Question 5

List three conditions when losses on marketable securities classified as available-for-sale are recognized in income.

Answer 5

• Sale of the security
• Transfer of the security to trading classification
• Other than temporary decline of individual security below cost (impairment)

Question 6

When a marketable equity security is transferred from trading to available-for-sale, or vice versa, at what cost is it transferred?

Answer 6

• Transferred at fair value, which becomes new basis.
• For a security transferred into the trading category, the difference is treated as a realized gain or loss and is recognized on the income statement.
• For a security transferred from the trading category, the unrealized holding gain or loss will already have been recognized in earnings.

Note: Transfers to and from the trading category should be rare.

Question 7

How are gains and losses on financial instruments that hedge trading securities reported?

Answer 7

Reported in earnings, consistent with reporting unrealized gains and losses on trading securities.

Question 8

How are gains and losses on financial instruments that hedge available-for-sale securities reported?

Answer 8

Reported in earnings together with the offsetting gains or losses on the available-for-sale securities attributable to the hedged risk.

Question 9

What disclosures should be made for available-for-sale securities and held-to-maturity securities?

Answer 9

• Aggregate fair value
• Gross unrealized holding gains and losses
• Amortized cost basis by type
• Information about the contractual maturity of debt securities