Brief Definition
Available-for-Sale (AFS) securities are financial assets that a company does not intend to hold until maturity nor trade in the short term.
Further Explanation
Available-for-Sale (AFS) securities are financial assets that a company does not intend to hold until maturity nor trade in the short term. These securities are typically debt or equity instruments that are intended to be held for an indefinite period but may be sold in response to needs for liquidity or changes in market conditions.
Example:
A company invests $100,000 in corporate bonds that it classifies as AFS securities. If the fair value of these bonds rises to $110,000, the $10,000 unrealized gain is reported in OCI, increasing the company’s equity but not affecting its net income. If the company sells the bonds, the $10,000 gain is then transferred from OCI to the income statement as a realized gain.