ing treatment and the proposed charfge in classification would resu sort of mism
ID: 2578940 • Letter: I
Question
ing treatment and the proposed charfge in classification would resu sort of mismatching. market-value changes with accounting perlous. DJ the account 10 °Case 10-2 Income Effects of Investments Victoria Company has both current and noncurrent equity securities All of the e Equity securiti of the equity securities have readily determinable fair values.s portf in the current year, the market value of each security exceeded cost. current portfolio are considered trading securities. At thegitie beginning of thExplanation / Answer
Answer- The answer to this question can be discussed in three parts based on the nature of the portfolio Victoria Company has -
Trading portfolio - These kinds of investments is meant for short term gains and frequency to sale/ purchase is high and there is no intention to keep the investment for long term. These kinds of Investments should be re-measured/ re-value at the closing price of the Investment (share, etc) and resulting gain/loss will be debited/ credited to period's PL,
Long term Investment horizon - this kind of Investment which is kept for long term view will not be having frequent sale/ purchase and these are not meant to earn short term profits. The usually short term view is considered which less than one year is. There should be an intention of management to keep such investment for long term with either long term price appreciation or some other strategic investment. Any change in the value of this investment as on reporting period/ close of balance sheet will form part of other equity and any cumulative difference between cost price and market price will only be relapsed to PL once it is actually sold in the market.
Held to Maturity Investment- These kind of investments are kept to earn interest for defined period and do not intend to sale before maturity. There is no mark to market valuation is done for such investments and hence these investments are shown at AMORTISED cost which is a value discounted by its IRR i.e. the value which ultimately will reach to its face value at the end of its maturity.
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