Debt investments classified as available-for-sale (AFS) securities

Available-for-sale (AFS) securities are investments in debt that a company does not plan to sell, but it is available to sell if, for example, cash needs arise or the market is particularly favorable.

Comparison to trading securities (TS)

• Like TS, AFS securities are reported in the balance sheet at fair value.

• Unlike TS, unrealized gains and losses are recorded in other comprehensive income (OCI) rather than in the income statement.

Comprehensive income

Comprehensive income = Net income + Other comprehensive income

 Unrealized holding gains and losses from available-for-sale securities are recorded in other comprehensive income (equity account).

Rationale for AFS treatment of unrealized holding gains and losses

"Because AFS securities are likely to be held for multiple reporting periods, one could argue that there is sufficient time for unrealized holding gains in some periods to balance out with unrealized holding losses in other periods, so including unrealized holding gains and losses in income each period would confuse investors by making income appear more volatile than it really is over the long run" (Spiceland et. al 2019, p. 657).

Adjust AFS investments to fair value & Sale of AFS investments