Economics · Accounting for Financial Assets
A corporate treasury department categorizes its debt investments based on the objective of the investment. If a company acquires high-rated corporate bonds with the specific intention of collecting contractual cash flows until the final redemption date and does not intend to sell them even if market interest rates fluctuate, these assets are typically classified under a category where:
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- 1the bond's principal amount is depreciated annually using the straight-line method over the tenure of the investment
- 2the securities are classified as current liabilities until the first interest payment is received by the treasury
- 3any change in the market value of the bonds must be reflected in the Profit and Loss statement at the end of every trading day
- 4the securities are carried at amortized cost and are not subject to periodic mark-to-market adjustments in the income statement✓
Correct answer
the securities are carried at amortized cost and are not subject to periodic mark-to-market adjustments in the income statement
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