When the cost model is applied to an investment in debt securities, such as bonds, it is referred to as the
A) equity method.
B) fair value through net income model.
C) fair value through other comprehensive income model.
D) amortized cost model.

Question

Quizplus · Accepted Answer

When the cost model is applied to an investment in debt securities, such as bonds, it is referred to as the amortized cost model. This means that the bond is initially recognized at cost and is subsequently measured at amortized cost, taking into account any adjustments for amortization of discount or premium, and impairment losses. This method is used when the objective is to hold the bond until maturity and collect the contractual cash flows.

When the Cost Model Is Applied to an Investment in Debt