FAR investments: classify and measure debt and equity correctly

The rules, one page each

1. Held-to-maturity debt: amortized cost and CECL allowanceWorked example

   Held-to-maturity debt securities are reported at amortized cost net of any allowance for expected credit losses. Unrealized fair value changes are not recognized in OCI or earnings; only expected credit losses are recognized through an allowance.

2. Available‑for‑sale (AFS) debt: amortized cost, fair value, and OCIWorked example

   AFS debt securities are reported at fair value, with unrealized gains and losses recorded in OCI unless there is an intent or requirement to sell or a credit loss. Use effective interest to compute amortized cost before measuring the OCI amount.

3. AFS debt credit losses: allowance to earnings, remainder to OCIContrasting cases

   For AFS debt, recognize expected credit losses in earnings via an allowance limited to the total fair‑value decline; the remaining noncredit portion is in OCI. If you intend to sell or it is more likely than not you will be required to sell, write down to fair value through earnings and remove related OCI.

4. Significant influence: when the equity method starts and stopsContrasting cases

   Apply the equity method when you can exercise significant influence over operating and financial policies; begin prospectively on the date influence is obtained, and cease when it is lost. On obtaining influence, carry forward the previous basis (fair‑value security) at its carrying amount and add cost of additional shares; on losing influence, remeasure the retained interest to fair value with a gain or loss.

5. Equity method rollforward: income, dividends, and basis differencesWorked example

   Under the equity method, increase the investment for the investor’s share of investee income and decrease it for dividends received. Amortize any fair‑value step‑ups in identifiable net assets over their remaining useful lives; adjust both the investment balance and equity‑method income for that amortization. Goodwill in the basis difference is not amortized.

6. Mixed portfolio: classify each investment and apply the right measurementSort it

   - Equity security without significant influence: fair value with changes in net income (ASC 321). - AFS debt: fair value with unrealized gains/losses in OCI, subject to credit‑loss allowance. - HTM debt: amortized cost net of CECL allowance. - Equity method: carry at adjusted cost with single‑line share of income and dividends reducing the investment.