Investments in Debt Securities Currently Are Permitted to Be Classified

question 24

Essay

Investments in debt securities currently are permitted to be classified as held-to-maturity and accounted for at amortized cost if an enterprise has the positive intent and ability to hold these securities to maturity.The held-to-maturity classification is the most restrictive of the three classifications specified in accounting standards.Despite the restrictiveness of the held-to-maturity classification,certain changes in circumstances may occur that would necessitate transferring an investment in a debt security from the held-to-maturity classification without calling into question the investor's general intention to hold other similarly classified investments to maturity.
What types of circumstances would cause an investor in debt securities classified as held-to-maturity to change that classification without calling into question the intent of the investor to hold other similarly classified investments to maturity?

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Definitions:

Insanity

A legal defense claiming that a defendant was unable to understand the nature of their actions or distinguish right from wrong due to mental illness at the time of their crime.

Voidable Contract

An agreement that has legal effect but that one of the parties has the option to end.

Mental Faculties

The cognitive functions of the mind, including perception, reasoning, intuition, and memory.

Mental Defect

A term previously used to describe a variety of mental disabilities or disorders, now considered outdated and insensitive. The modern usage advocates for specific diagnoses or conditions.