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Assume the investment in Illustration 1 is investment in stocks. The fair value at the end
of the period is P120,00.
Interest income from debt instruments, other than those which are classified as
financial asset at fair value through surplus or deficit, is recognized using the
effective interest method.
If the investment is in the form of bonds and is classified as available-for-sale
financial assets, the unrealized gain (loss) would have been computed as the
difference between the fair value at year-end and the carrying amount adjusted
for the amortization of bond discount or premium.
Only debt securities can be classified as held-to-maturity investments. Held-to-
maturity investments are subsequently measured at amortized cost, and
therefore, changes in fair value are ignored.