Accounting There Are Several Principles Essay

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These are considered to be unrealized gains, but for hold-to-maturity securities these gains/losses are not expected to be realized at any point. The company will note the fair value change in a footnote, but will not record such a change on either the income statement of balance sheet (Spiceland, et al.).

If, however, it becomes necessary to sell investments previously classed as hold-to-maturity, then the following adjustments are made. The cash received from the sale is recorded along with any discount on bond investment is sitting as an asset. The investment in the bonds will be recorded at face value. Any profit above face value will be recorded as gain on investments. This essentially ensures that the asset for discount on bond investment is reversed as a result of the sale. FASB No. 115 lists six conditions under which a change of security status from HTM could occur, including deterioration in the issuer's creditworthiness, a change in tax law, a major business combination or disruption, a change in statutory requirements, an increase in regulator's capital requirements or an increase in the risk weights of debt securities.

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A reclassification in the other direction -- from hold for sale to hold for maturity, is allowable only under rare circumstances according to FAS No. 115. The valuation for the reclassification would be on the date that the decision to reclassify takes place (Leone, 2008).

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