Financial Assets at Amortized Cost - Certain financial assets, such as
loans and receivables, are measured at amortized cost. Amortized cost
is the amount at which the financial asset is measured at initial
recognition, minus principal repayments, plus or minus the cumulative
amortization using the effective interest method.
This means that the financial asset is initially recorded at its original cost, and then adjusted for any principal repayments received over time. Additionally, any interest income or expenses are also incorporated into the asset's carrying value using the effective interest method, which takes into account the amortization of any fees or discounts associated with the asset.
The amortized cost is the carrying amount of the financial asset on the balance sheet, and it represents the net amount that the entity expects to receive in the future from that asset. This method allows for a more accurate representation of the financial asset's value over time, as it takes into consideration the timing and amount of cash flows associated with the asset.