What Is Held to Maturity?

Held-to-maturity securities (HTM securities) refer to debt securities that the company intends and can hold to maturity. If these securities expire within one year or a business cycle of more than one year, they should be reported in current assets; if the securities expire more than one year or more than one business cycle, they are held until Long-term investments should be presented in long-term assets. All held-to-maturity investments are accounted for at cost when purchased and interest income is accounted for when earned. ^[1]

Held to maturity investments

How to define held-to-maturity investments

Fixed-rate government bonds and floating-rate corporate bonds purchased by enterprises from the secondary market are held-to-maturity investments. Held-to-maturity investments generally have a long-term nature, but short-term (within one year) bond investments that meet the conditions for held-to-maturity investments can also be classified as held-to-maturity investments.

Enterprises cannot divide the following non-derivative financial assets into held-to-maturity investments:

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In Accounting Standards for Business Enterprises No. 22-Recognition and Measurement of Financial Instruments, the basic financial instruments of an enterprise are classified into transactional financial assets, held-to-maturity investments, available-for-sale financial assets, loans and

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The difference between the treatment of held-to-maturity investments and long-term debt investments:

The Accounting Standards for Business EnterprisesInvestment (hereinafter referred to as the old standards) stipulates that long-term debt investment can be divided into long-term debt investment and other long-term debt investment according to different investment objects. The "Accounting Standards for Business Enterprises No. 22-Recognition and Measurement of Financial Instruments" (hereinafter referred to as "the new standard") issued in 2006 stipulates that held-to-maturity investments are accounted for through the "hold-to-maturity investments" account, According to its accounting content, set up detailed accounts such as "cost", "interest adjustment" and "accrued interest". The accounting content of the "long-term debt investment" in the old standard and the "hold-to-maturity investment" in the new standard are roughly the same, but there are some differences in accounting treatment from acquisition to disposal.

Initial measurement. The initial investment cost at the time of long-term debt investment (bonds take one-off repayment and installment interest as an example) refers to the entire price paid when obtaining the long-term debt investment, including fees, taxes and other related expenses. However, the interest included in the actually paid price that has reached the interest payment period but has not yet been collected is accounted for separately as a receivable item. When the fees, such as fees and taxes, are relatively small, they are included in the investment income account at one time, and the difference between the paid price and the face value of the bond except for the fees and taxes is recorded in the premium or discount of the long-term debt investment . The new standard stipulates that the initial investment cost of an enterprise holding a held-to-maturity investment shall be the entire price paid, including the interest that has reached the interest payment period but has not yet been collected, and shall also be separately accounted for as a receivable item. The fees, taxes, and The premium discount part is recorded in "Hold-to-maturity investments-interest adjustment".

Holding period. During the holding period, long-term debt investment shall be accrued with interest on a regular basis and amortize the premium discount using the straight-line method or the actual interest rate method. , Credit "investment income". The new standard stipulates that held-to-maturity investments should also be accrued with interest on a regular basis during the holding period and adjusted for amortized interest according to the actual interest rate method, debiting "interest receivable", and debiting (debiting) "Interest adjustment", credit "investment income". At the same time, held-to-maturity investments can be reclassified as available-for-sale financial assets if they meet certain conditions during the holding period. On the reclassification date, the "available-for-sale financial assets" is debited at their fair value, and "holdings" are credited based on their book balances. There is an investment to maturity-cost "," interest adjustment ", credit or debit" capital reserve-other capital reserve "according to the difference, and the provision for impairment shall also be carried forward at the same time.

Period-end measurement. The old standard stipulated that the book value of long-term debt investment should be checked item by item periodically or at least at the end of each year. If the recoverable amount of the invested unit is lower than its book value due to the continuous decline in the market price or changes in the operating conditions of the invested unit, provision for impairment shall be made. If the value of the long-term debt investment that has been confirmed to be lost in subsequent years is restored, it should be reversed within the amount of the originally recognized investment loss, debited for "investment income" and credited for "long-term investment impairment reserves". The new standard stipulates that when the held-to-maturity investment is impaired, its book value should be written down to the present value of the expected future cash flows, and the amount of the write-down is recognized as asset impairment loss, which is included in the current profit and loss, Value loss ", credit" hold-to-maturity investment impairment reserve ". The present value of the estimated future cash flows shall be determined by discounting the original actual interest rate of the held-to-maturity investment. The main difference between held-to-maturity investments and long-term debt investment measurements at the end of the period, except for the different accounting subjects, is that the recoverable amount of long-term debt investments is determined by the higher of the present value of future cash flows and the net sales price; To-maturity investments are determined based on the present value of future cash flows.

Disposition due. When the long-term bond investment expires, debit "bank deposits", etc., credit "long-term debt investments-face value", and credit or debit "investment income" according to the difference. Carry forward of impairment provisions. When the held-to-maturity investment expires, only the "long-term debt investment one face value" account is replaced with the "held-to-maturity investment-cost, interest adjustment" account.