How is investment accounting? income recognition, asset valuation?

investment accounting.

Accounting for investments is detailed in SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securiites. Generally, a company must classify its investments using the following three categories:

Held to Maturity - This category is for investments in debt securities, such as bonds that a company intends to hold until the maturity date. The investment is accounted for using the amortized cost method. Unrealized gains and losses are NOT recognized. The asset is presented on the balance sheet at its amortized cost. Amortized cost is the original cost, net of amortization of discount or premium on the face value of the investment.

Trading Securities - Trading securities are investments in debt or equity purchased with the intention of selling them in the near term. Unrealized gains and losses are recognized in the income statement. The asset is valued on the balance sheet at its fair value.

Available for Sale - Investments that are not classified as trading or held-to-maturity are classified here. With these types of investments, unrealized gains or losses are not recognized on the income statement, but instead, in "Other Comprehensive Income", a component of shareholder's equity. When Available for Sale securities are sold, the amount of unrealized gain or loss reported in other comprehensive income is reclassified into net income. Available for sale securities are presented on the balance sheet at fair value.

Despite what is listed above, if an investment become impaired (a permanent reduction in value), the unrealized gain or loss may have to be recognized in net income.

The above guidelines do not apply to investments accounted for using the equity method of accounting or the cost method.