How to Calculate Marketable Securities

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Marketable securities are classified in three categories. Calculating the measurable value will depend on the classification. Marketable security classifications are trading, available for sale, and held to maturity. Trading securities are securities bought for the purpose of selling them in the near term. Held to maturity securities are debt securities the company plans to hold until the debt matures. Available for sale securities are any security not meeting the other security definitions.

  • Classify the marketable security as either trading, available for sale or held to maturity.

  • Measure the initial investment in trading securities and available for sale securities at the fair market value of the security. Measure held to maturity securities at the amortized cost.

  • Measure trading securities at fair value at the end of the year. The difference in fair value is an unrealized gain or loss. Companies report the unrealized gain or loss in the income statement. For example, a company buys a stock valued at $100 at the beginning of the year. At the end of the year, the stock value is $125. Report the trading security as $125 and report a $25 unrealized gain in the income statement.

  • Measure available for sale securities at their fair value at the end of the year. The difference in fair value is an unrealized gain or loss. Companies report the unrealized gain or loss in Other Comprehensive Income. For example, a company buys a stock valued at $100 at the beginning of the year. At the end of the year, the stock value is $125. Report the trading security as $125 and report a $25 unrealized gain in Other Comprehensive Income.

  • Maintain the held to maturity securities. No unrealized gains or losses are allowable for held to maturity securities.

References

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