franzino

Isn’t the problem with this that you recognize an unrealized gain in Year 1 (the difference between ￡350k fair value and ￡297k carrying value) and then in Year 2 you recognize another gain (against the continuously and consistently amortized carrying value), even though the fair value has dropped to ￡325k?
Shouldn’t the fact that you recognized growth on an asset which has since declined mean you should recognize a loss or reverse out the excess historical profit? This would be possible with Other Comprehensive Income, because that’s a cumulative account, I believe. However, straightforward income finds its way to retained earnings and can’t be reversed out - only lost.
If capital gains are measured only against carrying values, and carrying values are amortized as if held to maturity (even on trading assets), then the whole fair value thing becomes a bit of a nonesense, doesn’t it? What am I missing?