What Is Investment Accounting?

Introduction 1 This announcement relates to the accounting treatment of investments in corporate financial statements and requirements regarding matters that should be explained.
2 This announcement does not involve:
(A) The basis for the recognition of interest, royalties, profits and rents earned on investments included in International Accounting Standard 18-Recognition of Revenue and International Accounting Standard 17-Lease Accounting;
(B) investments in subsidiaries;
(C) investments in associates and joint ventures;
(D) goodwill, patent rights, trademark rights and similar assets;
(E) Financing leases in International Accounting Standard 17-Lease Accounting;
(F) Investments made by pension plans and life insurance companies.
Definition 3 The following terms used in this announcement have specific meanings:
Investment refers to the assets held by an enterprise in order to increase wealth through distribution (such as interest, royalties, dividends, and rent), to increase capital, or to bring other benefits to the investment enterprise such as improving trade relations. All inventories referred to in "International Accounting Standards 2-Valuation and Presentation of Inventories under the Historical Cost System" are not investments. Fixed assets (other than real estate used for investment) referred to in International Accounting Standards 16-Fixed Assets Accounting are not investments.
Short-term investment refers to an investment that can be realised at any time and is held for a period of time that is not prepared for more than one year.
Long-term investment refers to investment other than short-term investment.
Investment in real estate refers to investment in real estate or real estate, and its occupation purpose is not mainly for the operation or use of the investment enterprise or other enterprises in the same company group.
Fair value refers to the amount of an asset that can be exchanged voluntarily by buyers and sellers who are familiar with the situation in normal transactions.
Market value refers to the amount that can be obtained by selling an investment in the market at that time.
Marketable (or translated into value) refers to the existence of a market at the time and the market price (or some mark that can be used to calculate the market price).
Explain the form of investment. 4 Owners of an investment have various purposes. The investment activities of some enterprises are an important part of operating business. The evaluation of the operating conditions of such enterprises should be based on the results reported by the investment activities as the main or sole basis. Some companies have investments to store surplus funds, while others have investments for trade purposes to consolidate trade relations or build trade advantages.
5 Some investments are represented by securities or similar securities, while others are not. The nature of the investment may be a debt, a debt other than a short-term or long-term trade debt, representing the amount payable to the investment holder, usually with interest; in another case, it may be the result of the business of a company Sharing rights, such as equity shares. Most investments represent financial rights, but some are tangible assets. For example, certain investments in land or houses, direct investments in gold, diamonds, or other marketable goods.
6 For some investments, the market price can be determined based on the market at the time. For these investments, the market value can indicate their fair value. Some investments have no market or market value, and other methods are used to determine fair value.
Classification of investments 7 The balance sheets provided by many companies distinguish between current assets and long-term assets in accordance with International Accounting Standard 13-Presentation of Current Assets and Current Liabilities. Short-term investments are included in current assets. Portfolio investment has not been sold for a long time, and it does not necessarily have to be listed outside the current assets.
8 An investment held mainly to protect, facilitate, or develop an existing business or trade relationship of an enterprise. It is usually called a trade investment. It is not intended to be used as a cash resource and is therefore classified as a long-term asset. Other investments, such as investment in real estate, are intended to be retained for years to generate income and capital gains, and even if they can be sold, they should still be classified as long-term assets.
9 Some enterprises do not distinguish between current assets and long-term assets, and some enterprises may adopt a balance sheet format that does not distinguish between current assets and long-term assets in accordance with the requirements of regulations. Most of these companies belong to the financial sector, such as banks and insurance companies. Although such enterprises do not intend to sell their assets in the current period of operating activities, they generally believe that their investment can be used in the current period of operating activities when needed.
10 However, these companies may have investments that are indeed long-term assets. For example, a bank can own shares in a leasing company.
11 Therefore, many of these companies analyze their investments and determine their book value based on whether they are short-term or long-term investments.
The cost of investment 12 The cost of investment includes commissions for commissioners, various service fees, taxes, bank fees, etc. to purchase the investment.
13 If an investment is purchased through or in part through the issue of stocks or other securities, the acquisition cost is the fair value of the securities issued, not the nominal or nominal value of the securities. If the purchase of an investment is wholly or partly exchanged for other assets, the purchase cost should be determined with reference to the fair value of the assets that are exchanged out. If the fair value of the purchased investment is more clear, a value can be used to determine its acquisition cost.
14 Investment-related interest receivables, royalties, dividends and rents are income from investments and are usually treated as income. But in some cases, this kind of income only represents the recovery of costs and does not form part of the benefits. For example, when purchasing an investment with interest, the unpaid interest payable before purchase has been calculated and this part of interest is included in the purchase price. When interest is subsequently received, the interest received should be paid before the purchase and Allocated between two periods after purchase. The pre-purchase part shall be deducted from the purchase cost. Dividends declared on equity securities in accordance with corporate profits before purchase shall be treated in the same way. If such distribution is difficult, it can only be based on subjective judgments. Usually, dividends receivable are used to offset the cost of investments only when the dividends receivable clearly represent the recovery of some costs.
15 The difference between the purchase cost and the repayment value of a debt securities investment (discount or premium at the time of purchase) is usually amortized by the investor during the period after the bond is purchased and before the maturity, so that the return on the investment before and after Consistent. The amortization amount of the discount or premium shall be used to write down or debit income like interest, and to increase or decrease the carrying amount of securities. The resulting book value can be considered as the current cost.
Carrying amount of investment Short-term investment 16 There are different opinions on how to determine the carrying amount of short-term investment properly. Some people believe that the financial statements prepared under the historical cost practice apply to "cost and net realizable value" At the same time, because most short-term investments have a market price, the book value of the investment is determined according to the lower cost and market price. Proponents of this method of determining the carrying amount have proposed that this will lead to prudent balance sheet amounts and will not result in the recognition of unrealized benefits in revenue. They argued that the fluctuating and reversible changes in stock market prices were simply not the result of selecting a particular balance sheet date and therefore could not be recorded.
17 Others have suggested that since short-term investments are a form of deposit of wealth that can be realised at any time, or a substitute for cash, it should be valued at fair value, which is usually the market value. What companies care about is not the cost of investment projects, but the cash they can get when they sell them. Investment is not the same as inventory because investments can generally be sold without hassle, and it is generally not advisable to acknowledge sales profits until inventory is established. Every investment is not necessary for a business. For example, after an equity investment is sold, the proceeds are invested in bank deposits without any hindrance to the business. Therefore, investments should be reported at market prices. Proponents who use the market price as the book value also propose that reporting investments at historical cost will allow the management of the enterprise to determine the amount of revenue at will. Because people can sell the selected investment and immediately repurchase it after the sale, and report the profit as a gain, and this transaction has not changed the economic situation of the enterprise.
18 Generally speaking, companies are concerned about the overall value of various securities as short-term investments, not individual investments, because these investments are held together as a store of wealth. Consistent with this, investments that are listed at the lower cost and market prices are valued on the basis of the overall investment in securities, based on the total amount or classification of the investment, rather than on the basis of individual investments. However, some people believe that the use of securities investment as the basis will lead to the loss of unrealized gains.
Long-term investments19 Long-term investments are usually stated at cost. If there is a non-temporary decline in the value of a long-term investment, the carrying amount should be reduced to confirm the decline. The indicator of investment value can refer to the market price, the assets and business results of the investee, and the cash flows expected to be brought by the investment, and consider the type and extent of the investor's risks and their interests in the investee. Restrictions on the distribution of the investee and restrictions on the sale of investors may also affect the value set for the investment.
Many long-term investments are of unique importance to investment companies. Therefore, the book value of long-term investments is generally determined item by item. However, in some countries, the equity value of long-term investments can be determined on the basis of the lower cost and market value of the book value. In this case, both temporary reductions and pick-ups in book values are included in equity.
21 If the decrease in the carrying amount of a long-term investment due to a non-temporary decline in value cannot be offset by previous revaluations, it should be expensed in the income statement (see paragraph 23). When the investment value rises, or the reason for reducing the book value no longer exists, the reduced book value can be reversed. However, in some countries the reduction in the carrying amount cannot be reversed.
Revaluation 22 Sometimes long-term investments are revalued at fair value. In order to maintain consistency, the policy on the revaluation interval should be clearly defined. All long-term investment projects should be revalued at the same time, at least in the same category.
23 The increase in the carrying amount caused by the revaluation of long-term investments is directly credited to the owners' equity as a revaluation surplus. The decrease in the carrying amount caused by the revaluation is within a range that can be offset by the increase in the revaluation surplus credited before the same investment. If the increase has not been resold or has not been utilized, the revaluation surplus should be debited. In all other cases, a reduction in the carrying amount should be offset by a reduction. If the increase in a revaluation is directly related to the decrease in the carrying amount of the previously deducted income of the same investment, the increase shall be credited to the limit to make up the decrease previously recorded.
Investment in real estate 24 Some companies choose to account for investment in real estate as a long-term investment. Others are willing to account for investment real estate in accordance with their accounting policies for fixed assets, in accordance with International Accounting Standards 16-Fixed Assets Accounting, and depreciation in accordance with International Accounting Standards 4-Depreciation Accounting.
25 Enterprises accounting for investment real estate as an investment believe that changes in the fair value of investment real estate, usually changes in market prices, are more important than depreciation. Therefore, regular revaluation of investment real estate is required. Where fair value is used as the carrying amount, changes in carrying amount shall be accounted for in accordance with the provisions of paragraph 23. If such fair value is not recorded as a carrying amount, it should be stated.
Sale of investments 26 When an investment is sold, the difference between the sales proceeds and the carrying amount is included in the income statement as a profit or loss on sales after deducting expenses. If the investment has been revalued, or if it is recorded at market value on the book, the increase in the book amount has been credited and remains in the revaluation surplus of shareholders' equity, the increase can be carried forward To earnings or retained earnings. The advantage of the former approach is that investment-induced wealth growth can be included in the income statement.
27 On the basis of securities investment as a whole, short-term investments that are accounted for at the lower of cost and market price, any reduction in the market price should be offset by the aggregate cost of securities investment, and each investment is still recorded at cost. Therefore, the profit and loss of various investment sales is based on costs, and the total reduction in securities investment to the market price as a whole needs to be re-estimated.
28 When a certain investment held by a company is partially sold, the carrying amount must be allocated to the part sold. The method is usually to first calculate the total average book value of the investment held to determine the book value of the sale part.
Carry-over of investments 29 Long-term investments are sometimes reclassified as short-term investments. When carrying forward books:
a. If short-term investments are booked at the lower of cost and market value, carry forward at the lower of cost and book value. If the investment has been revalued in the past, the relevant balance of the revaluation surplus should be written off when carried forward.
b. If short-term investments are booked at fair value, they should be carried forward at book value. At the same time, if the change in the fair value of short-term investments is included in the income, the relevant revaluation surplus balance should be transferred to income and listed in the statement in accordance with "International Accounting Standards 8-Changes in extraordinary items, previous projects and accounting policies" Show.
30 Reclassification from short-term investment to long-term investment should be carried forward at the lower of cost and market price one by one. If it was recorded at market price in the past, carry forward at market price.
Changes in investment within the portfolio of securities investment 31. Companies that engage in a large number of investment activities often maintain a portfolio of securities investment and often trade within the portfolio. Companies do this in an attempt to improve the overall quality and income of their securities investments. After the sale of an investment, the proceeds can be reinvested, or the cash portion of the investment portfolio can be retained.
32 In view of such frequent changes in the overall investment in securities, there are various opinions on how to deal with it properly when selling a specific investment:
(1) Some insisted that the surplus or shortage of the net sales income compared with the book value represents the realized profit or loss and should be recognized immediately in the income;
(2) Some controversies say that this sale only reflects the adjustment of the content of the securities investment as a whole. Since only one investment is used to replace another, it does not represent an increase or decrease in value. Therefore, profits and losses should not be reflected in income.
(3) A few people advocate an intermediate approach, which is to spread the difference between net sales revenue and costs into revenue within a certain period of time.
33 A better method is the above (1). Paragraph (2) should only be used when the market price is used as the basis and changes in the market price are recorded as revenue, because adjustments based on the market price have been considered. Paragraph (3) is not appropriate because the entire profit or loss cannot be recognised in the period in which it occurs.
Income statement 34 Some companies take short-term investments as freely realizable wealth in storage and register short-term investments at market prices, recognizing that any profit or loss resulting from changes in market prices is part of the income, which can be related to the profit and Losses are included in the income statement. However, in some countries, this kind of profit is not allowed to be included in the income, but is directly credited to shareholders' equity, and is calculated in the same way as the revaluation surplus of long-term investments.
35 If short-term investments are accounted for at the lower of cost and market price, the reduction amount adjusted to the market price and the number of reversals of this reduction amount shall be included in the income statement along with the proceeds of the sale of the investment.
36 Any decrease in the carrying amount of a long-term investment due to a non-temporary decline in value, and the reversal of such a decrease, as well as the profit and loss of the long-term investment when realized, shall be included in the income and shall be in accordance with the International Accounting Standards 8-Changes in Extraordinary Items, Previous Items and Accounting Policies.
Professional investment enterprises 37 In some countries, there are professional investment enterprises whose main business is to hold investment portfolios of securities as a means of investment for their shareholders. These companies count their investments at fair value (usually market value), as that is the most appropriate basis in that case. They believe that the realized gains and losses on investments are essentially the same as unrealized gains and losses, so they are calculated in the same way. They announced that all changes in investment value during the period were included in the summary table.
38 The articles of association of these enterprises prohibit the distribution of profits from the sale of investments as dividends, and require a distinction between interest, dividends, and gains and losses from the sale of investments. Therefore, these companies do not include any change in the value of the investment, regardless of whether the change has been realized.
The accounting of taxes 39 due to the implementation of this announcement shall be handled in accordance with the provisions of International Accounting Standard 12-Income Tax Accounting.
Matters that should be explained 40 should explain the following:
(1) Accounting policies for the following matters:
Determination of the carrying amount of the investment,
The accounting treatment of market price changes of short-term investments recorded at market prices,
Accounting for revaluation surplus when selling revalued investments;
(2) Important amounts included in investment income:
Interest, royalties, dividends and rents for long-term and short-term investments,
Profits and losses when short-term investments are sold off and changes in the value of such investments;
(3) If an investment that can be sold in the market is not listed at market price, its market price should be stated;
(4) If the investment in real estate is accounted for as a long-term investment and not accounted for at fair value, the fair value shall be stated;
(5) Important restrictions on the realization of investment or repatriation of income and sale income;
(6) For long-term investment reflected by revaluation amount:
Regarding the revaluation interval policy,
the date of the latest revaluation,
The basis for revaluation and the participation of external valuers;
(7) changes in the revaluation surplus during the period and the nature of these changes;
(8) An overall analysis of securities investment by enterprises holding investments as their main business.
41 provides the following instructions to help readers understand the financial statements;
(1) Classification analysis of long-term investment;
(2) the fair value assessed by the directors for investments not traded in the market,
(3) Valuation methods applicable to investments that are not traded on the market and used to assess values comparable to costs;
(4) Amounts related to investments sold during the year in revaluation surpluses previously distributed or converted into equity;
(5) To represent and report the details of any single investment in the important part of the company's assets.
Forty-two enterprises should account for investments in accordance with paragraphs 43-53, while professional investment enterprises can account for investments in accordance with paragraph 54.
Classification of investments 43 Enterprises that divide current assets and long-term assets on their financial statements should list short-term investments as current assets, and long-term investments should be reflected as long-term assets.
44 In the balance sheet, long-term investment and short-term investment enterprises are not divided, and they should still be distinguished in measurement, and the book value of the investment should be determined according to the provisions of paragraphs 46 to 47.
Investment Real Estate 45 Enterprises holding investment real estate should choose one of the following two methods:
(1) In accordance with the provisions of "International Accounting Standards 16-Fixed Assets Accounting", investment housing is treated as real estate, and depreciation is performed in accordance with the provisions of "International Accounting Standards 4-Depreciation Accounting".
(2) As long-term accounting.
The investment book value of 46 is classified as an investment in current assets and should be listed in the balance sheet in one of two ways: (1) market price, (2) cost and market price are lower.
If the short-term investment is listed at the lower of cost and market price, its carrying amount can be determined on the basis of the overall securities investment by the total amount or investment category, or on the basis of a single investment.
47 Investments classified as long-term assets should be accounted for in the balance sheet as one of the following three: (1) cost, (2) revaluation amount, and (3) if it is equity securities, on the basis of the overall Adoption costs and market prices are low.
If a revaluation amount is used, a policy on the revaluation interval should be selected, and all long-term investments of the same type should be revalued simultaneously.
The carrying amount of all long-term investments should be deducted from the non-temporary decline in the value of the investment. Such reductions are determined and deducted separately for each investment.
Changes in the carrying amount of investments 48 The increase in carrying amounts caused by the revaluation of long-term investments shall be credited to owners' equity as a revaluation surplus. The decrease in the carrying amount caused by the revaluation is within a range that can be offset by the increase in the revaluation surplus credited before the same investment. If the increase has not been resold or has not been utilized, the revaluation surplus should be debited. In all other cases, a reduction in the carrying amount should offset the gain. If an increase in a revaluation is directly related to a small carrying amount of previously deducted income for the same investment, the increase should be credited to the limit, to the extent that it is sufficient to make up the previously recorded decrease.
49. Enterprises that list short-term investments at market prices should consistently apply one of the following two policies to account for increases or decreases in book value: (1) included in earnings, (2) calculated in accordance with paragraph 48.
Sell-off of an investment When selling an investment at 50, the difference between the net sale proceeds and the carrying amount should be debited or credited to the proceeds. If the investment is a current asset and it is listed at the lower of cost and market price on the basis of the overall investment in securities, the profit or loss on sale should be calculated based on cost. If the investment has been revalued, or it is booked at market prices, and the increase in book value is transferred to the revaluation surplus, the enterprise should choose a policy to credit the relevant balance of the revaluation surplus to earnings, or Is carried forward to retained earnings. The selected policies shall be adopted in accordance with the International Accounting Standards 8Changes in Extraordinary Items, Previous Projects, and Accounting Policies.
Carry-over of investments 51 Long-term investments are reclassified as short-term investments.
(1) If the short-term investment is recorded at the lower of cost and market value, it shall be carried forward at the lower of cost and book value. If the investment has been revalued in the past, the relevant balance of the revaluation surplus should be written off when carried forward.
(2) If short-term investments are booked at market prices, they should be carried forward at book value. If the market price changes of short-term investments are included in income, any balance of the relevant heavy valuation surplus should be transferred to income.
52 Investment reclassified from short-term to long-term should be carried forward one by one at the lowest cost and market price. If it used to be booked at market price, carry it over at market price.
The following items should be included in the income statement 53:
(1) Investment income from:
Interest, royalties, dividends and rents on long-term and short-term investments,
Profits and losses when short-term investments are sold,
When selecting the policy of paragraph 49 above, unrealized profits and losses on short-term investments recorded at market prices,
Short-term investments that are accounted for at the lower of cost and market price, the reductions that occur when the market price is reduced, and the reduction of such reductions;
(2) The reduction of the carrying amount caused by the non-temporary drop in the price of long-term investments and the reversal of such reductions;
(3) Profits and losses when long-term investments are sold when calculated according to paragraph 50.
Professional investment enterprises 54 are prohibited from distributing the profits of their investment. If investment projects are listed at fair value, their returns may not include changes in investment value, whether or not they have been realized. The financial statements of these enterprises should include a summary of all changes in the value of investments during the period.
Matters that should be stated 55 should explain the following:
(1) Accounting policies concerning:
Determination of the carrying amount of the investment,
Accounting for market price changes of short-term investments recorded at market prices,
Treatment of revaluation surplus when selling revalued investments;
(2) Important amounts included in income:
Interest, royalties, dividends and rents on long-term and short-term investments,
Sell off the profits and losses of short-term investments, and the changes in the value of such investments;
(3) If the investment can be sold in the market, if it is not listed at market price, its market price should be stated;
(4) Where the investment in real estate is accounted for as a long-term investment and is not recorded at fair value, the fair value shall be stated;
(5) Important restrictions on the realization of investment and repatriation of income and sale income;
(6) For the long-term investment reflected by the revaluation amount: the policy on the revaluation interval, the date of the most recent revaluation, the basis of the revaluation and the presence of external valuers
(7) Changes in the revaluation surplus during the period and the nature of these changes;
(8) An overall analysis of securities investment by enterprises holding investments as their main business.
Effective date 56 of this International Accounting Standard is effective for financial statements for reporting periods beginning on or after January 1, 1987. ^[1]