Non-current Assets - Investments and Funds

These are the assets that are not directly used in the operations of the business. This includes investments in debt and equity securities of other companies, land purchased to profit from price appreciation, noncurrent receivables, and any cash kept aside for a special purpose that is not accounted for as current asset.

The financial investments can be classified as follows:

1. Held-to-Maturity (HTM) securities (or debt investments)

An HTM security is a debt investment made by an investor company that is intended to be and able to be held until it matures.  HTM securities are typically reported under long-term assets on the balance sheet.  The investor company carries HTM investments at amortized cost.

2. Available for Sale (AFS) securities 

AFS securities include equity securities that an investor company does not intend to trade in the short term and debt securities that the investor company does not into to trade short term and not classified as HTM.

AFS securities can be reported on the balance sheet as current assets or long-term assets.

AFS securities are reported at fair value.

Income Statement: Dividend income, interest income, realized gains and realized losses from AFS securities are reported on the investor company’s income statement.

Unrealized Gains and Losses from AFS Securities:

Appreciation in market value of AFS securities are not reported on the income statement and do not impact net income. AFS market value changes are reflected on the balance sheet; the difference between net income and the equity value on the balance sheet is reconciled by the firm’s other comprehensive income (OCI) activities. Once the AFS securities are sold, the accumulated OCI adjustments to the balance sheet are reversed and a gain or loss is finally recognized on the company’s income statement.Applies a designation called “net income recognized directly in equity” which is similar to OCI in GAAP.

3. Held for Trading (HFT) securities

Debt or equity securities that an investor company intends to trade, commonly within the next quarter.

Balance Sheet: HFT securities are typically current assets and reported at fair value.

Income Statement: Under both IFRS and GAAP, dividend income, interest income, realized gains and losses, and unrealized gains and losses are reported on the income statement.

Example:Thinking about the nature of HFT securities, many companies are not likely to frequently report HFT assets on the balance sheet.  A company likely to regularly report HFT securities on its balance sheet would be a financial services firm, as a standard business activity for an entity like an investment bank could involve trading securities.

4. Designated Fair Value Instruments 

As of 2009, both IFRS and GAAP allowed companies to designate financial assets as fair value instruments.  Once this classification is made, it cannot be changed and the reporting is similar to that of HFT securities, as unrealized gains and losses are reported directly on the income statement and not as part of other comprehensive income or net income recognized directly in equity.

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