What is the treatment for unrealized gains or losses under Amortized Cost?

Under the amortized cost method of accounting, unrealized gains or losses are not recognized in profit or loss or in other comprehensive income. This approach is primarily utilized for financial assets that the entity intends to hold until maturity, such as certain types of fixed-income securities. Because these assets are measured at amortized cost, they reflect the initial cost adjusted for any repayments of principal and amortization of any premium or discount over time.

The underlying principle is that the focus is on the eventual cash flows that will be received when the asset is held to maturity, rather than on market fluctuations in value. Thus, any unrealized shifts in the market value of these assets do not impact the current profit or loss, nor do they get recognized in the equity section as comprehensive income, preserving the focus on realized earnings rather than market volatility. This aligns with the aim of amortized cost reporting to provide a stable and conservative view of an entity's financial position based on expected future cash flows.