Mistaken idea “Fair-value adjustment replaces interest amortization”

Fair-value reporting does not remove the effective-interest calculation. For an AFS or trading debt security, first compute cash interest, effective-yield interest, and discount or premium amortization. Only then compare updated amortized cost with fair value.

A learner shows the error by subtracting original cost from a quoted period-end price and calling the difference the fair-value adjustment. Correct it with a two-stage bridge. If opening amortized cost is $486,457.02, interest revenue at 3 percent is $14,593.71 and cash interest is $12,500. The $2,093.71 discount amortization produces $488,550.73 of ending amortized cost. That amount, rather than original cost, is the baseline for the later fair-value layer.