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Appraise the effect of the different classes of securities on the content of financial reports

Appraise the effect of the different classes of securities on the content of financial reports

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Financial reports include financial statements such as income statement,balance sheet, cash flow statements, statement of stockholders equity and notes to financial statement accounts.

• All companies report the securities it owns in its financial statements. Recording of these securities depends on how long the company is intending to hold them.

• Securities are classified into three types:

1) Held for trading securities

2) Available for sale

3) Held till maturity .

Reporting the changes in market price of these securities varies effects several parts of the financial statements.

Income statements: In income statement, changes in fair market value of investments are shown as income or loss, but only if the securities are classified as held for trading securities.

Balance sheet:

In balance sheet, marketable securities are shown as assets. Usually, securities are shown at fair market value as of the date of financial statements. In case of securities held till maturity, securities are shown at cost.

Cash flow statement :

The statement of cash flows show the changes in fair market value of investments as a reconciling item in the operating section of the statement. The investing section of statement always shows the cash used to purchase securities or the cash received from sale of securities.

Statement of stockholders equity:

In case of securities available for sale, the statement of stockholders equity should show the changes in fair market value of the investments as a separate component of stockholders equity.

Notes to financial statement accounts or disclosures:

Disclosures to financial statements shows the classification of securities owned. They also provide information as to what kinds of securities are owned by the company and what transactions have been taken place during the financial year.

ekkarill92 answered 2 years ago
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