Abstract:

When the examination of bank’s financial position statement last ten years, held to maturity securities have seen a significant share in securities. In this context, this security to be shown the real value on the financial position statement is very important. To be reflecting on the financial statement position the real value of these securities, time values of money should be taken into consideration. International Accounting Standards (IAS/TMS) envisaged the use of "Effective Interest Method” which is taking into account the time value of money, recording of held to maturity securities. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or Financial liabilities) and of allocating the interest income or interest expense over the relevant period. The Effective interest rate should be the annually interest rate that calculated based on daily compounding. The purpose of this study is to expose the effect of application of Effective Interest Method for reporting of interest income of fixed income securities, which classified as a“ held to maturity investment “, over investment period in banking sector. As a result, Effective Interest Method provides more realistic allocation based on time value of money and more reliable information in the financial reports at the allocation of interest income of the investment over the relevant period. Hence, the decision makers who need information about a bank can get more reliable information from reports of financial position and financial performans.

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