When the fair value of an investment in debt securities exceeds its amortized costs?

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28-07-2022
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When the fair value of an investment in debt securities exceeds its amortized costs?

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Tutorconsortium319 Tutorconsortium319 · Answer 1 · 2022-08-03T11:41:44+02:00

Debt securities (bonds) classified as held-to-maturity are reported at amortized cost. Debt securities classified as available for sale are reported at fair value.

What do debt securities represent?

An obligation to pay back borrowed funds is represented by debt security. The terms of the debt security specify the amount of the loan, the interest rate, and the maturity or renewal date.

What is amortized cost?

The accumulated fraction of a fixed asset's recorded cost that has been charged to expense through either depreciation or amortization is known as the amortized cost.

Why is fair value different from amortized cost?

In contrast to amortized cost, the fair value of an asset or liability does not take depreciation and amortization into account. Similar to this, businesses may reevaluate the fair value of their assets or obligations following a reasonable period. They do not rely on the previous price or value of their possessions.

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