The Debt And Equity Securities - 882 Words

Prior to 2016, both debt and equity securities could be classified as available for sale and their gains and losses reported in other comprehensive income. However, with the passing of Accounting Standard Update No, 2016-01, all equity securities must now be classified as trading and their unrealized gains and losses reported in earnings. After examining the history of available for sale reporting standard and running pro forma scenarios of Yahoo! Inc.’s financial statements, I have determined that it better reflects the true risks taken by the company for the unrealized gains and losses on equity securities to appear in earnings rather than other comprehensive income. In May of 1993, FASB issued Statement of Financial Accounting†¦show more content†¦Furthermore, even if management lacks the intention to sell, there remain events and circumstances beyond the control of management that can force the need to sell. By measuring the changes in fair value in net income it allows the investors to know the potential effects of these events and circumstances. Critics of the fair value measurement cite the increase in volatility that it causes in net income. A distinct disadvantage to reporting the gains and losses on the income statement is that these gains and losses have not actually occurred and may not ever be realized (Proposed change†¦, 2009). The input surrounding the current cost method indicated that the method was not developed enough nor well defined. The board agreed and discarded the method early on in the deliberations. Those who favor amortized cost claim that it avoids some of the temporary fluctuations in net income. The arguments against amortized cost include: 1) It reflects an irrelevant historical transaction price that is not useful in current investment decisions. 2) Use of amortized cost depends on subjective impairment models that can be manipulated to smooth earnings. With all things considered, the board decided that a c hange in fair value being shown in net income is a more appropriate measurement for equity investments. The reasoning being that the realizable value of these investments could be realized by selling the equity instruments. In contrast, the realizable value of debtShow MoreRelatedThe Debt And Equity Securities952 Words   |  4 PagesPrior to 2016, both debt and equity securities could be classified as available for sale and their gains and losses reported in other comprehensive income; however, with the passing of Accounting Standard Update No, 2016-01, all equity securities must now be classified as trading and their unrealized gains and losses reported in earnings. After examining the history of available for sale reporting standard and running pro forma scenarios of Yahoo! Inc.’s financial statements, the forthcoming evidenceRead MoreThe Debt And Equity Securities1064 Words   |  5 Pagesboth debt and equity securities could be classified as available for sale and thei r gains and losses reported in other comprehensive income; however, with the passing of Accounting Standard Update No, 2016-01, all equity securities must now be classified as trading and their unrealized gains and losses reported in earnings. The forthcoming evidence indicates that the financial statements better reflect the true risks taken by the company when the unrealized gains and losses on equity securities toRead MoreThe Fasb Codification Topic 320 : Investments Debt And Equity Securities1487 Words   |  6 Pages Overall. 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