• According to the accounting standards, available-for-sale financial assets are those nonderivative financial assets that are designated as available for sale or are not classified as loans and receivables, held-to-maturity investments, or financial assets at fair value through profit or loss.
  • Available-for-sale securities are debt or equity investments that are held for an indefinite period of time without any intention to resell for profit.
  • They are not trading assets, as in the case of short-term assets held for speculation, nor are they acquired with an intention to hold till maturity.
  • If there is an increase in the market rate over and above the purchase rate of AFS securities, then such increase is recorded as part of the other comprehensive income (OCI) and not recognized as income in the current period. The is shown as part of the shareholders’ equity in the balance sheet.
  • Any foreign exchange gains and losses on monetary assets are recognized in the statement of profit and loss except for those items that are designated as hedging instruments.
  • Equity instruments being nonmonetary assets, the gain or loss including any related foreign exchange component is recognized directly in the appropriate equity account.
  • In the balance sheet a nonmonetary financial asset such as an investment in equity instrument is translated using the closing rate if it is carried at fair value in the foreign currency, and using the historical rate if it is not carried at fair value when its fair value cannot be reliably measured.
  • As per the U.S. GAAP Statement of Position, it is not mandatory to show separately the capital gains/loss due to change in the market rate of the asset, or currency gains/loss due to change in the foreign exchange rate, although the SOP indicates that such separate reporting would provide valuable information to the users of the financial statements.
  • If an equity instrument measured at fair value with gains and losses recognized in the appropriate equity account becomes impaired, the cumulative net loss recognized in the equity account, including any portion attributable to foreign currency changes, should be recognized in the statement of profit and loss.
  • If the equity securities classified as available-for-sale are sold, then the realized gains/loss on such sale is transferred from the OCI to the income statement and an entry is recorded to that effect.

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