Question

Explain what factors determine investment classification between the categories: Minority Passive Investments, Equity Investments and Investments requiring consolidation.

Explain the characteristics of the following investment classifications: Held-to-maturity, trading securit

Answer 1

Hi Please see below answer.

Below are the types of Intercorporate Investment in Capital Stock:-

1. Minority Passive Investments – These are the investment in which holding of ownership is less than 20% of total ownership.
2. Minority Active Investments/ Equity Investments – These are the investment in which holding of ownership is between 20% to 50% of total ownership.
3. Investments requiring consolidations/ Majority Active Investments – These are the investment in which holding of ownership is more than 50% of total ownership.

Below are the three classification of Securities which Minority Passive Investment Securities:-

1. Securities - Held to Maturity
2. Securities – Held for Trading
3. Securities – Available for Sale.

Characteristics of Held to Maturity Securities – These are long term debt securities, which are intentionally held till maturity. Firm has a positive intent and ability to hold to maturity.

Accounting for the securities held-to-maturity

• At amortized cost.
• Difference between acquisition cost and maturity value is an adjustment to interest revenue (Effective Interest rate method).
• Fair values are disclosed in notes on accounts.

Characteristics of Held for Trading Securities – These are short term

Accounting for the securities held for trading

• Marked-to-market.
• Unrealized gain or loss = As a part of Net Income.
• Sale of security: Gain or loss (Selling Price less Book Value) in Net Income.