Let's have a look at the accounting treatment of financial assets under US GAP and IFRS in a bit more detail.

For each example, we're gonna use an example bond with a price of 100, which we'll assume is also the par value and where the coupon rate is 5%.

We're also going to assume that the market price of the security increases to one 20 by the end of the year, and then it sold the following year for one 20 as well.

If the security is classified as trading under US gap or at fair value through the p and l, under IFRS, this is how the accounting treatment will work.

Initially, cash is down by 100 and the investment up by 100 on the purchase date.

At the end of the first year.

The balance sheet needs to reflect the increase in market value to one 20, and since the security may be sold shortly after this, this change in market value is shown straight away as a gain in the income statement, and therefore added to retained earnings in the balance sheet, even though the gain has not been realized at this point.

The Trading securities under US gap and fair value through the p and l under IFRS, all the realized and unrealized gains and losses made during a year are shown straight away in that year's income statement.

The coupon of five 5% of the par value that is received during the year is also taken as income straight into the income statement, increase in cash and retained earnings both by five when the security is later sold.

In this example, at the same value as at the year end, there is no further gain or loss to reflect in the income statement, so there's no impact on retained earnings from this sale.

The gain of 20 is already in retained earnings from the previous year end.