Available-for-sale credit-loss layer

The AFS credit-loss layer is the supported credit part of an available-for-sale debt security's decline below amortized cost. It is recognized through an allowance and earnings. A qualifying noncredit change remains in OCI. ASC 320-10-35-1 supplies the AFS fair-value and OCI setting for this credit analysis.

Begin with a security-level assessment

ASC 326-30-35-1 defines impairment for this purpose by comparing fair value with amortized cost. ASC 326-30-35-4 requires assessment at the individual-security level and rejects a general allowance for unidentified portfolio impairment. The market decline is a test condition; it is not the credit estimate.

Use these reviewed inputs:

amortized cost                 $488,550.73
fair value                      470,000.00
credit allowance                 3,000.00
noncredit loss in OCI            15,550.73

The credit and OCI layers together explain the $18,550.73 decline. The balance sheet amount is still $470,000.

Know what the workbook cannot decide

ASC 326-30-35-6 compares expected cash flows with amortized cost and limits the allowance by the fair-value shortfall. A simple bridge can apply a supplied allowance, but it cannot forecast cash collections or establish credit quality. Keep expected cash-flow support, market evidence, management's intent and requirement to sell, the allowance rollforward, and OCI reconciliation with the security record.