What question did this study set out to answer?

The aim is to evaluate the measurement approach for interest income under new accounting standards and propose a theoretically correct solution.

June 15, 2026

Effective Interest... On What Basis?

Key Points

The aim is to evaluate the measurement approach for interest income under new accounting standards and propose a theoretically correct solution.
An examination of SFAS No. 115 and its requirements for market-based and historical cost measurements.
A comparison of the required measurement approach with two alternative methods.
Identified the inconsistencies in measuring interest income due to conflicting valuation methods.
Proposed a theoretically correct solution addressing the valuation disparity for debt securities.

Abstract

Abstract In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The new statement requires a market-based valuation method for equity securities and certain investments in debt securities on the statement of financial position while simultaneously maintaining a historical cost-based measurement system on the income statement. This lack of symmetry creates a theoretical problem when measuring interest income following the required revaluation of a debt security. This article examines the measurement approach required by the new statement and two alternative approaches and offers a theoretically correct solution to this problem.

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