Debt investments trading on balance sheet
There are many other reasons to hold bonds until they mature. Selling AFS securities that have market gains reclassifies the gains from comprehensive income to net income, allowing managers to claim that they met expectations. Managers tend to like this accounting because the effect on net income debt investments trading on balance sheet highly predictable. What do you think? Investments may not be readily available to pay dividends or invest in operations.
Investments may not be readily available to pay dividends or invest in operations. That tax could be as high as 33 percent, representing the U. As anecdotal evidence, I recall that when these accounting principles were first implemented well before year manufacturing entities all had trading portfolios.
Most entities maintain an investment portfolio that includes bonds, shares of stock and derivative securities. Managers realize this possibility and have almost unanimously decided not to trade bonds or equities. Years ago Debt investments trading on balance sheet negotiated this low rate with the Irish government. Sony managers were under pressure to improve operations and show a profit.
This may take a second or two. But issues exist with investments to the point where the FASB recently finalized a new accounting standard update, effective Managers know that they will be judged based on net income. Almost never do they use the trading classification for reasons discussed below.
It is no surprise then that managers want to control manage net income. Suppose an entity purchases a bond and intends to earn short-term trading gains. This may take a second or two.