Separate interest, credit, and fair value

One period can contain three different stories: compensation for lending, expected cash shortfall, and market repricing. A one-line “investment loss” hides all three.

Start with the contractual yield layer

Use opening amortized cost times the matched effective periodic yield for interest revenue. Compare that amount with coupon cash; the difference amortizes discount or premium. Retain full precision. Fair value does not replace this row for AFS or trading securities because the row explains interest economics and establishes the pre-valuation basis.

For the repeated bond, opening amortized cost is $486,457.021390. The matched semiannual yield is 3 percent, so interest revenue is $14,593.710642. Subtract $12,500 coupon cash to obtain $2,093.710642 discount amortization and $488,550.732032 ending amortized cost. The three-lane worked example shows the complete shared row before any classification-specific adjustment.

Add credit only from a supported estimate

For HTM debt, the applicable amortized-cost expected-credit-loss model produces an allowance against gross amortized cost. For AFS debt, use its separate credit-loss model and limits. This module accepts a controlled credit component; it does not infer one from the market-price decline or import a receivable loss rate without evaluating fit.

Bridge AFS to fair value

In the example, AFS ending amortized cost is $488,550.73 and fair value is $470,000. The total decline is $18,550.73. A supplied $3,000 credit component runs through earnings and the allowance. The remaining $15,550.73 is the noncredit OCI loss.

amortized cost − allowance + noncredit OCI adjustment = fair value
$488,550.73 − $3,000.00 − $15,550.73 = $470,000.00

The sign convention must be stated. A negative OCI adjustment lowers the asset. The ledger can use separate valuation accounts, but the workpaper must still reconcile to one reported fair value.

Exit check

Reperform the shared effective-interest row and each classification bridge. Then identify, in separate sentences, who owns the classification conclusion, credit estimate, and fair-value evidence. A balanced spreadsheet proves none of those inputs.