This also results in a holding gain or loss which is not due to the normal operations of a firm.
For the purposes of valuation after acquisition, there are three classes of marketable securities: 1. Debt held to maturity 2. Trading securities (debt or stock) 3. Securities available for sale (debt or stock)
4. Majority, active investments
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Marketable Securities
Marketable securities are bonds or stocks for which there is an active market and hence a reliable market value.
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Valuation after Acquisition
Because there exists a market value, marketable securities can be reliably written up or down to the market value giving a more current estimate of economic worth.
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Classification
Securities are properly classified as marketable securities when 1. The firm can readily convert them into cash, and 2. Intends to do so when it needs cash.
corporate bonds issued by other companies, stocks of other companies; they basically fall into two categories: debts and stocks. If the company holds another company’s bond, this company is a creditor; if holds another company’s stock, this company is a shareholder.
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Valuation at Acquisition
Marketable securities are initially recorded at acquisipurchase price plus any commissions, taxes or other costs related to the acquisition.
This is the same rule as the general rule for valuing assets at acquisition.
When the company receives dividends or interests from marketable securities, it Dr. Cash ### Cr. Dividend (interest) revenues ###
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Financial Assets
We have covered physical assets such as account receivables, inventory, and long-lived assets.
Companies also possess financial assets. Examples of financial assets include government bonds,
If either of the two tests for marketable securities do not apply, then the securities are properly classified as investment in securities.
Investment in securities are securities held for long-term goals and are classified as long-term assets.
They are liquid assets in that they can easily and quickly be converted into cash.
Marketable securities held as a temporary investment are classified as current assets.
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Types of financial assets
1. Marketable securities (both debts and stocks): Current assets
2. Minority, passive（被动） investments
3. Minority, active investments
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Good news…
In these last two lectures, we use real University of Chicago GSB lecture notes…
And you judge which school offers better financial accounting course, Guanghua or Chicago GSB?