Question

Describe how debt and stock investments are reported in financial statements.

I detail please, Thank you

Answer 1

ANSWER -

STEP-1

For understanding, how debt and stock investments are reported in financial statements, first we have to understand what are Debt and Stock investments.

DEBT INVESTMENT- Debt investment is a kind of investment in a firm, by purchase of different debt instruments like bonds,debentures etc.

STOCK INVESTMENTS- Stock investment is an investment made by the firm, by purchase of different equities and stocks.

STEP-2

After understanding the meaning of Debt and Stock investment, second step is to understand how debt and stock investment are reported in financial statements.

As we know Debt investment is due to the purchase of bonds etc, so it is classified as Trading securities, available- for-sale securities, or held-to-maturity securities for valuation and reporting purposes.The classification is made on the basis of the period, the firm holds it. Both debt and Stock investment are recorded using the cost method.

Debt investment is classified as Held-to-maturity securities, when business or firms hold the bonds etc untill it matures. It may be long period or short period depends on the maturity date. So, In Balance sheet, it can be classified as short term (current ) investment or long term investment depends on the maturity date.( Only debt investment can be classified as HELD-TO-MATURITY securities because stock investment does not have any maturity date.)

As we know stock investment is due to the investment made by the purchase of various types of stocks and assets. So, it can also be classified as trading securities and available-for-sale securities depends on the purpose of investment.

Hence, Debt investment and Stock Investment, both investments can be classified as Trading securities or available-for-sale securities.

• If debt and stock investment are held for the selling purpose within a short period, it is classified as Trading securities and considered as short term assets.
• On the other hand, Debt and Stock investments can also be classified as Available-for sale securities, when the debt and stock investment are held for selling purposes either for short term or long term period. It can be classified as long term assets or short term assets on the basis of management's intention of when to sell the securities.

STEP-3

CONCLUSION-

Only debt investment is classified as HELD-TO-MATURITY securities as only debt instrument has maturity date and can hold till its maturity date and can be considered as long term assets or short term assets on the basis of its maturity date.

On the other date, Both debt investment and stock investment are classified as trading securities and available for sale securities, depends on the period of sale. If debt and stock investment, is held for short period and the purpose is to sell within a short period, it is classified as trading securities. While, if the debt and stock investment, are held for selling purposes either for long term and short term, so it can be classified as Available-for-sale securities and can be considered as long term assets or short term assets.