Held-to-Maturity Investments - CFA Level II FRA

These are the investments in financial assets with:
• Fixed or determinable payments.
• Fixed maturities (debt securities).
Under both IFRS and U.S. GAAP, the investor must have a positive intent and ability to hold the security  to maturity.
Under both IFRS and U.S. GAAP, an entity is not permitted to classify any financial assets as held-to maturity if it has during the current or two preceding financial reporting years, sold or reclassified more than an insignificant amount of held-to-maturity investments before maturity (unless the sale or reclassification meets certain criteria).


Accounting Treatment under IFRS: 
• Held-to-maturity securities are initially recognized at Fair value + Transaction costs
• At each reporting date (subsequent to initial recognition), Held-to-maturity securities must be reported at amortized cost using the effective interest rate method.
Amortized cost = Original Cost of the debt security + discount - premium
• Any discount (par value> fair value) or premium (par value < fair value) existing at the time of purchase is amortized over the life of the security.
• Any interest payments received are adjusted for amortization and are reported as interest income.
• If the security is sold before maturity, any realized gains or losses arising from the sale are recognized in Income Statement of the period.


Accounting Treatment under U.S. GAAP:
• Held-to-maturity securities are initially recognized at Historical Cost + Transaction costs
• At each reporting date (subsequent to initial recognition), Held-to-maturity securities must be reported at amortized cost using the effective interest rate method.
• Any discount (par value> fair value) or premium (par value < fair value) existing at the time of purchase is amortized over the life of the security.
• Any interest payments received are adjusted for amortization and are reported as interest income.
• If the security is sold before maturity, any realized gains or losses arising from the sale are recognized in profit or loss of the period.