How are debt securities classified as trading or available-for-sale valued on the balance sheet?

Debt securities classified as trading or available-for-sale are valued on the balance sheet at fair value. This reflects the current market price of the securities, providing a more accurate representation of their worth compared to historical or amortized costs.

For trading securities, the fair value approach allows for changes in value to be recognized in earnings, impacting the income statement directly. This is important for investors who may be actively buying and selling these securities for profit.

For available-for-sale securities, while they are also recorded at fair value on the balance sheet, any unrealized gains or losses are reported in other comprehensive income until sold, at which point they are recognized in earnings. This approach adequately captures the market fluctuations of the values of these securities while reflecting the long-term nature associated with available-for-sale classifications.

The other methods mentioned, such as cost or amortized cost, do not provide the same level of information regarding the current value of these investments, hence they are not appropriate for measuring trading or available-for-sale debt securities.