Accounting for Investments Debt Securities (Portfolio 5106)

  • This Portfolio analyzes accounting and reporting for investments in debt securities by presenting, interpreting, and illustrating the generally accepted accounting principles.


Bloomberg Tax Portfolio 5106, Accounting for Investments in Debt Securities (Accounting Policy and Practice Series), analyzes the accounting and reporting for investments in debt securities in accordance with generally accepted accounting principles. This Portfolio also addresses hybrid securities that are treated as debt, but it does not discuss investments in equity securities or hybrid securities that are considered equity securities. Debt investments and hybrid securities treated as debt investments are financial instruments that embody a settlement obligation and do not convey either a direct or indirect ownership. This description of a debt investment is based on FASB discussions of financial instruments during their October 6, 2004 board meeting. Other Portfolios address accounting for investments in equity securities.

This Portfolio principally addresses its subject from the standpoint of a holder or investor in debt securities.

This Portfolio analyzes in detail accounting for investments in debt securities by presenting, interpreting, and illustrating the accounting rules. Specifically, this Portfolio focuses on accounting practices and reporting as they relate to the acquisition of investments in debt securities, the recognition of interest income, disposition of investments, fair value adjustments, impairments, hedging, and transfers among investment classifications. Key audit considerations also are discussed.

This Portfolio provides numerous examples covering a variety of different debt securities and situations as topics are introduced. These examples illustrate the application of generally accepted accounting principles as reflected in journal entries and amounts reported in the financial statements. A comprehensive example combines most of the concepts presented in the Portfolio. The Worksheets include 1) amortization tables for the debt instruments included in the comprehensive illustration and 2) sample disclosures. Worksheet 1 defines abbreviations and acronyms that recur in the text. For the readers convenience the Worksheets also reproduce essential professional standards and implementation guidance

This Portfolio may be cited as Bloomberg Tax Portfolio 5106, Kohlbeck, Accounting for Investments in Debt Securities (Accounting Policy and Practice Series).

Note: Various FASB documents, copyright by the Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 06856-5116, U.S.A., are reprinted with permission.

Table of Contents

I. Introduction and Overall Scope of Portfolio
II. Overview of Current Practice
III. Historical Cost Accounting
IV. Fair Value Accounting
V. Impairments
VI. Transfers Among Categories
VII. Hedging Investments in Debt Securities
VIII. Presentation and Disclosures
IX. Auditor Considerations
X. Comprehensive Illustration
XI. Concluding Thoughts

Mark Kohlbeck
Professor, School of Accounting
Florida Atlantic University
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