Available-for-sale debt security

An available-for-sale, or AFS, debt security is a debt security in the AFS classification. It is reported at fair value, but its workpaper must preserve several separate layers. ASC 320-10-35-1 addresses subsequent measurement for debt-security classifications, and Topic 326 supplies the AFS credit-loss rules.

Reconcile the layers in order

First update amortized cost through effective interest. Next apply the supported credit allowance through earnings. Then place the qualifying noncredit part of the fair-value change in other comprehensive income, or OCI. The balance sheet still reports the security at fair value.

Assume ending amortized cost is $488,550.73, fair value is $470,000, and the supported credit allowance is $3,000. The total decline from amortized cost is $18,550.73. After the $3,000 credit layer, the remaining $15,550.73 is the noncredit OCI loss in this bounded example. The layers reconcile to the $470,000 reported asset.

Preserve the limits of the calculation

The difference between amortized cost and fair value is not automatically a credit loss. ASC 326-30-35-6 uses expected cash flows and caps the allowance at the decline below amortized cost. The calculation above accepts the credit estimate as supplied. Keep the credit memorandum, fair-value evidence, security-level identifier, and accumulated OCI record with the schedule. Do not combine all changes under one vague "impairment" label.