Question
On July 1, 2026 Sablecrest Instruments bought three portfolios of debt securities for cash and classified them under US GAAP (ASC 320):
| Portfolio | Classification | Cost | Fair value at December 31, 2026 |
|---|
| Short-term corporate notes | Trading | $80,000 | $86,500 |
| Municipal bonds | Available-for-sale | 120,000 | 114,000 |
| Treasury bonds | Held-to-maturity | 50,000 | 47,000 |
All securities were bought at par, so there is no premium or discount to amortize. Ignore interest income.
Required:
- Record the July 1 purchase as one compound entry using Trading Debt Investments, Available-for-Sale Debt Investments and Held-to-Maturity Debt Investments.
- Record any December 31 fair value adjustments. Use Fair Value Adjustment (Trading) with Unrealized Holding Gain on Trading Securities (net income), and Fair Value Adjustment (Available-for-Sale) with Unrealized Holding Loss on AFS Securities (OCI) (other comprehensive income). Record nothing for a portfolio that is not remeasured.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IFRS 9 — Financial Instruments
Classification drives the accounting, so settle it first: amortised cost, fair value through profit or loss, or fair value through other comprehensive income. Only then decide where remeasurement gains and losses land, because the same price movement is reported in different places under different classifications.
Common mistakes
- Routing a fair value movement through profit or loss when the instrument is measured at FVOCI, or the reverse.
- Capitalising transaction costs on an instrument held at fair value through profit or loss, where they are expensed.
- Forgetting to remove the cumulative gain or loss from equity on the disposal of an FVOCI investment.
Further readingIFRS 9: measuring financial instruments