In the modern world, many individuals and legal entities carry out investment activities. The most attractive are long-term financial investments. This is explained by the mass of their advantages over other earning options. It is worth knowing what financial investments are.
Definition of a concept
Long-term financial investments constitute investment financial asset or capital by an individual, legal entity or enterprise for a period exceeding one year. They are funds that are directed to the authorized capital of other companies. They can be invested in the purchase of securities. They are also long-term loans received from third parties.
Classification of financial investments
The object of investment is fixed and current assets. They can also be targeted financial deposits, securities, intellectual property in which investments are made. For the object, long-term investments are divided into:
- Securities. This type is considered portfolio investment. In this case, bonds and shares are purchased for a period of more than a year. Most often, with such investments, the investor has no desire to earn money on speculation. Long-term investments of this type are divided into two groups:
- Investing in securities to carry out a partial acquisition of a joint stock company. This will allow the investor to participate in the management of the organization.
- Investing capital in order to preserve it. This option is not common, due to the fact that securities are highly liquid assets. However, investors still use them if they belong to stable joint-stock companies and do not undergo significant fluctuations.
In addition, securities can be private and public, depending on who issues them.
- Debt securities. The most common type of them are bills. The holder of the bill receives capital, which is transferred to the holder at a predetermined time. Long-term investments of this type are usually large amounts. They are provided for a period of more than a year, since during this period it is possible to improve the financial condition of the company.
- Contributions to the authorized capital of third parties contribute to profit after the development of this company. This investment is also long-term, as a small number of organizations can recoup all expenses in a short time.
- Loans. Their provision is similar to - bills. However, in this case debentures are formed on the basis of a guarantee or contract.
Having familiarized yourself with the main types of investments, you should determine what contributions to enterprises can be.
Other types of investments
Long-term financial investments also include deposits in enterprises that issue loans. The investor provides funds issued to citizens as a loan. This investment involves the receipt of a certain part of the percentage of the payment. This type of investment is mainly carried out for several years.
Investments can also be made in the authorized capital of partnerships. They are a legal form. The latter allows you to get enough capital to start an entrepreneurial activity by summing up the money contributed by the co-founder.Accordingly, the investor will receive a percentage of the partnership’s profits.
Income is distributed among the co-founders in accordance with the amount of capital contributed by each of them. Long-term community investments enable you to effectively manage your business. Profits will have to wait more than one year. However, this depends on the specific case.
What values do not apply to financial investments?
It is worth noting that financial investments are not:
- Own shares that were redeemed by the shareholder of the company with the aim of canceling or reselling them.
- Bills received by the seller organization from the drawer company in the process of settlement for the services rendered, products provided or work performed.
- Investments in property represented in material form by the company. However, only temporary use is available for profit.
- Works of art, precious metals and similar values that are acquired to generate income.
In case of purchase of the listed values, the investor cannot accept them as a financial investment.
Actual asset purchase costs
Assets that are cash, financial investments or other values require the acquisition of the following actual costs:
- Amounts paid to the seller in accordance with the contract.
- Costs related to the provision of consulting and information services related to the purchase of assets. Their value relates to the financial results of a commercial organization, and non-profit - to increase costs. It takes into account the reporting period during which a decision was made regarding the acquisition of financial investments.
- Remuneration paid to the person or company that completed the asset purchase task.
It is worth noting that long-term financial investments do not include the costs listed above, aimed at the acquisition process.
Financial investments in financial statements
The following information is subject to disclosure taking into account the materiality requirement in the financial statements:
- The method according to which financial investments are assessed in the balance sheet upon their disposal.
- The consequences of the change in the method of appropriate assessment.
- The price of financial investments that determines their current market value.
- The difference between the indicators that helped to obtain an assessment of financial investments and current market value.
- The difference between the original and face value upon purchase of debt securities during the term of their repayment.
- The type and price of the deposit, which is encumbered with a pledge.
- Type and price of retired securities after their transfer to another person or company through a gratuitous transaction.
- Information on the reserve for depreciation of deposits with an indication of its type, amount and amount.
- Information on loans and debt securities. Such financial investments in the balance sheet must be displayed without fail.
All necessary information should be provided in a timely manner in order to avoid violation of the law.
Conditions for the adoption of assets for accounting
To take financial investments into account, the following conditions must be observed without fail:
- The presence of reliable documents with the correct execution, which indicate the existence of the company's rights to make deposits and receive assets.
- Organization of financial risks associated with making financial investments.
- Long-term financial investments should be able to bring economic benefits to the company. It is expressed in the form of dividends, interest or value addition.
In the presence of all the factors listed above, it is possible to carry out accounting of assets of this type.
The tasks of the analysis of financial investments
The assessment of financial investments is aimed at solving the following problems:
- Assessment of the effectiveness of investments.
- Analysis of the structure and composition of financial investments.
- Determination of their direction.
- Analysis of sources of financing assets of this type.
To carry out the accounting of deposits in the Chart of Accounts, an active inventory account 58 is used, for which the following accounts are opened:
- Debt securities.
- Shares and shares.
- Loans granted.
Depreciation of financial investments
The depreciation of investments is a significant and sustainable decrease in their value. Estimated value is the difference determined between the book value and the amount of decrease in the value of financial investments. This indicator should be determined by those deposits for which market value is not calculated. The depreciation of long-term financial investments is characterized by the following conditions:
- The book value of investments significantly exceeds the estimated cost at the reporting date.
- The estimated investment value has been reduced during the reporting period.
- There is no likelihood of a significant increase in estimated cost.
Signs of depreciation of financial investments
Depreciation of assets most often occurs when a company that is issuing securities shows signs of bankruptcy. It is also possible when making securities purchase and sale transactions at a price that is less than their real value. A significant impact on the depreciation will be provided if the sources of long-term investments do not generate income, as well as if it is significantly reduced.
In the presence of such conditions, the company should check for signs of a steady decline in the value of assets. If the fact of depreciation is confirmed by verification, the organization must form a special reserve between the accounting and estimated cost.
The reflection of the depreciation reserve for investments in the financial statements
The created reserve should be reflected in the debit of account 91. The account 59 is specially allocated for the loan. Moreover, its amount is used to form the cost of financial investments in the balance sheet. It is the difference between the carrying amount and the established reserve. Moreover, the reserve under consideration allows you to cover the resulting losses on operations with assets.
The composition of long-term financial investments should be checked by the organization for depreciation at least once a year (if the above symptoms are present). The amount of the created reserve should increase if the audit reveals a high probability of a decrease in the estimated value of the investment.
