SFAS 115

On the other hand, equity securities do not have any form of maturity, hence, cannot be classified as held to maturity. Such securities are often recorded at an amortized cost. The cost is computed by eliminating the initial investments by the amounts paid as the principal repayment, and other impairment losses. Later, one adjusts the amount of amortization discount/premium using the effective rate of interest approach. It is also important to note that income in held to maturity securities is determined using the effective interest rate method (Schultz & Hollister, 2011). The third category of investments in SFAS 115 is the available-for-sale securities. Available-for-sale investments can either be a debt or equity security, which is bought with the aim of trading it before the maturity period (Schultz & Hollister, 2011). Lifschutz (2011) indicates that the main difference in the trading and available-for-sale securities is that the investors intend to hold the investments of a short...