Professional literature of the accounting for marketable investments in debt securities isn’t easy to find. The only principle guidance that could be found, so far, is the Accounting Standard Codification (a.k.a the new U.S. GAAP by the FASB) codenamed ASC 320. The codification applies to both equity and debt instruments held as investments, and prescribe fair value accounting for all—except debt instruments being held to maturity.
The guidance stipulated that the amortized cost method be used, absent a substantial, other-than-temporary decline in value.
The same codification also requires that investments in debt securities be classified, upon acquisition, as belonging to one of three portfolios: (1) trading; (2) available-for-sale; or (3) held-to-maturity. What is trading debt securities? What is available-for-sale debt securities? What is held-to-maturity debt security? What would be happened if a debt security is transferred from one category to another? In short, what is the accounting for marketable investments in debt security? That is the topic I am going to discuss through this post which is based on the Accounting Standard Codification, the ASC 320-10-25 to be exact. Read on…
