Financially material investments. Short-term financial investments on the balance sheet
Balance sheet is the main type of accounting reports. It shows the state (property and finances) of the organization for a certain period and/or at the current moment. It is divided into two points - liability and asset, which are necessarily equal to each other. They, in turn, are divided into sub-items, where the types of asset and liability are displayed, respectively. The structure of the balance sheet is fixed by order of the Ministry of Finance of the Russian Federation in 1999 under number 43n.
Short-term financial investments (SFI)
| Financial investments include | Does not apply to financial investments |
|---|---|
| State and municipal securities | Own shares purchased from shareholders |
| Securities of other organizations, incl. bonds, bills | Bills issued by the organization of the drawer of the bill to the seller organization when paying for products, services, work |
| Contributions to the authorized (share) capital of other organizations, incl. subsidiaries and dependent business companies | Investments in real estate and other property that has a tangible form, provided for a fee for temporary use in order to generate income |
| loans provided to other organizations | Precious metals, jewelry, works of art and other similar valuables acquired outside the normal course of business |
| Deposits in credit institutions | |
| Accounts receivable acquired on the basis of assignment of claims, etc. | |
| The contributions of an organization that is a partner under a simple partnership agreement are also taken into account as part of financial investments. | Assets that have a tangible form, such as fixed assets, inventories, as well as intangible assets, are not financial investments. |
Short-term financial investments (SFI) are funds invested for a period not exceeding twelve months from the date of the last report. They are located in the “Asset” group, in the 2nd paragraph of the Balance Sheet, code line 1240. All areas of financial investments are reflected there: securities (debt), transferred loans (including %%), purchased rights, shares, contributions under partnership agreements, deposits (divided into rubles and foreign currency).
This does not include loans that are interest-free, since they are not considered an investment. If the deadline for any of the items has not been established, but it is planned to make a profit or repay the loan in less than a year, this situation is reflected in the KFV.
Directions of short-term financial investments
KFV is a method for an organization to protect free funds from inflation or to obtain additional benefits in the future. Since investments of this kind have high liquidity and are part of current assets, they become on the same level as means of payment, and their responsibilities include ensuring the financial obligations of the owner.
Most often, short-term investments are made in materials or raw materials. The advantage of this type of investment is that such deposits are least at risk of being lost because the situation in the economy can be predicted for a period of 12 months. The political situation and the exchange rate of the national currency can also be identified as influencing factors.
As for deposits of securities, here the enterprise takes a conscious risk, since in this case it is best to invest in liquid securities, which can be transferred into finance without much difficulty at any time. Only a competent specialist can predict this, perhaps even using some analytical programs. Some enterprises specifically turn to such specialists for advice. This item of short-term financial investment can be classified as liquid only if the securities have a minimal risk of falling in price and can be easily sold.
If we talk about loans, then, as a rule, loans issued for short periods are subject to higher interest rates than long-term ones (LFA). This measure will protect the company from non-refund of funds.
An enterprise has the right to transfer any monetary deposit from long-term to short-term if its purpose or intention to use it further changes. Such a clause must be provided for in the company’s statutory accounting documents.
Example In February 2010, an organization received a loan from another company for a period of 24 months; accordingly, it must repay it in February 2012. In the report for 2010, it will be displayed in the paragraph on DFV. After two years, it can be transferred to the KFV, since the time remaining for its payment is less than a year.
Short-term financial investments are indicated on account 58. This account is intended to bring together information about investments and their movements within the enterprise. Accounts may be opened, for example, 58-1 - “Securities”. Accounting is maintained by groups and types of investments of the organization, regardless of which country the funds or assets are located.
Information that must be disclosed when indicated in the accountant's reports (minimum)
- Methods for assessing EF by their types.
- Variants of situations possible with changes in these methods, the cost of those investments that have a defined price and those that do not have one as such, or it is not possible to determine.
- The difference between the price today and the price indicated in the previous report.
- The cost of those securities that are pledged, as well as those that were transferred to other companies or individuals (excluding sales).
- Information on reserves against depreciation of deposits, indicating the type, amount of reserves, and the amount for which they were used in the specified year.
- Data on loans and debt securities provided (discounted value, methods of discounting).
And accounting information about the organization’s financial investments. An organization is further understood as a legal entity under the laws of the Russian Federation (with the exception of credit organizations and state (municipal) institutions).
(see text in the previous edition)
This Regulation is applied when establishing the specifics of accounting for financial investments for professional participants in the securities market, insurance organizations, and non-state pension funds.
2. For the purposes of these Regulations, in order to accept assets for accounting as financial investments, the following conditions must be simultaneously met:
the presence of properly executed documents confirming the existence of the organization’s right to financial investments and to receive funds or other assets arising from this right;
transition to organizing financial risks associated with financial investments (risk of price changes, risk of debtor insolvency, liquidity risk, etc.);
The ability to bring economic benefits (income) to the organization in the future in the form of interest, dividends or an increase in their value (in the form of the difference between the sale (redemption) price of a financial investment and its purchase value as a result of its exchange, use in repaying the organization’s obligations, an increase in the current market value and so on.).
3. Financial investments of an organization include: state and municipal securities, securities of other organizations, including debt securities in which the date and cost of repayment are determined (bonds, bills); contributions to the authorized (share) capital of other organizations (including subsidiaries and dependent business companies); loans provided to other organizations, deposits in credit institutions, receivables acquired on the basis of assignment of claims, etc.
For the purposes of these Regulations, contributions from a partner organization under a simple partnership agreement are also taken into account as part of financial investments.
The organization's financial investments do not include:
own shares purchased by the joint-stock company from shareholders for subsequent resale or cancellation;
Bills of exchange issued by the organization-drawer of the bill to the organization-seller in settlements for goods sold, products, work performed, services rendered;
Investments of an organization in real estate and other property that has a tangible form, provided by the organization for a fee for temporary use (temporary possession and use) for the purpose of generating income;
precious metals, jewelry, works of art and other similar valuables acquired for purposes other than normal activities.
4. Assets that have a tangible form, such as fixed assets, inventories, as well as intangible assets are not financial investments.
5. The accounting unit for financial investments is selected by the organization independently in such a way as to ensure the formation of complete and reliable information about these investments, as well as proper control over their availability and movement. Depending on the nature of the financial investments, the order of their acquisition and use, the unit of financial investments can be a series, batch, etc. homogeneous set of financial investments.
6. The organization maintains analytical accounting of financial investments in such a way as to provide information on the accounting units of financial investments and the organizations in which these investments are made (issuers of securities, other organizations in which the organization is a participant, borrowing organizations, etc.) .
For government securities and securities of other organizations accepted for accounting, analytical accounting must contain at least the following information: name of the issuer and name of the security, number, series, etc., nominal price, purchase price, expenses associated with acquisition of securities, total quantity, date of purchase, date of sale or other disposal, place of storage.
An organization can generate in analytical accounting additional information about the organization’s financial investments, including by their groups (types).
7. Features of the assessment and additional rules for disclosing information on financial investments in dependent business companies in financial statements are established by a separate regulatory act on accounting.
The financial activities of each enterprise are closely related to investments in various projects and assets. Financial investments include both securities and contributions to the authorized capital of organizations. The main condition for such investments is their focus on making a profit.
What assets are classified as financial investments?
Similar investments are made by every active organization. The concept under consideration is contained in both accounting and reporting. The organization's financial investments include:
- various securities with fixed maturities and redemption values;
- contributions to the capital of other enterprises and organizations;
- issued loans (except interest-free) and deposits;
- acquired receivables, etc.
The conditions for including these assets in the concept under consideration are as follows:
- mandatory documentary evidence;
- bearing certain risks (up to and including losses) associated with such investments;
- the focus of investments on making a profit (for example, receiving dividends, increasing the value of assets, etc.).
According to the law, financial investments include both short-term and long-term investments.
Long-term investments include investments for a long period (more than one year). These could be, for example:
- equity participation in the capital of other organizations;
- provision of interest-bearing loans to other organizations;
- acquisition of securities (shares, bonds, etc.) with a long maturity.
Accounting for such financial investments is carried out on account 58, and in the balance sheet they are reflected in line 1170.
Short-term financial investments are investments whose circulation or repayment period lasts up to one year. These may be securities of other legal entities, finances in time deposit accounts of credit institutions, etc. Such assets are characterized as liquid and most easily sold. In the reporting they are indicated in line 1240 of the balance sheet.
Such investments are characterized by increased risk, and their management is difficult due to the lack of a large amount of time. Such assets are prone to depreciation. Reserves are created for them, and financial investments are also periodically checked for depreciation. Analytical accounting is created for accounting account 59 “Provisions for impairment of financial investments”. The cost of investments in respect of which such a reserve has been created corresponds to the balance sheet minus the corresponding reserves.
In order to competently manage investments for all of these types, it is necessary to determine the profitability of financial investments.
Cost and disposal of financial investments
To determine the current market value of financial investments, all available sources of relevant information are used. If financial investments are not traded on the securities market and their current market value is not determined, they are accounted for at the reporting date at their original cost.
The initial cost of debt securities, the current market value of which is not determined, may be changed to nominal values during the period of their circulation. This is done evenly depending on the amount of income on such securities.
Regardless of the purpose for which financial investments are made, their disposal is subject to accounting when:
- repayment;
- sale;
- gratuitous transfer, etc.
The disposal of the corresponding asset for which the current market value is not determined is accounted for:
- or at original cost;
- or at the average initial cost;
- or using the FIFO method.
Investing is the placement of money or other assets that are expected to bring financial benefit to their owner. To understand the essence of this economic category, it must be classified. The basic classification of investments depends on the method of investment. Thus, real and financial investments are distinguished.
Real investments are investments in real assets of an enterprise, which can be divided into two subgroups: tangible and intangible. In textbooks devoted to the study of economics, real investments may be called capital investments, since they can exaggerate the amount of capital in the future.
Financial investments are a combination of monetary investments in securities, deposits and equity participations. Financial investments are investments in long-term financial instruments that can generate additional income in the future. Also, the purpose of such investments may be to protect them from various financial risks: inflation, crisis, theft. In fact, monetary investments are considered a rather complex category that needs to be considered in detail.
Kinds
Financial investments can take different types, it all depends on the investment objects. A loan from a bank is a good example of a financial investment, which, if the business is run efficiently and the borrowed funds are used for the intended purpose, can bring financial benefits to the entrepreneur. For example, an enterprise takes out a loan from a bank to upgrade current equipment, which in the future will help increase the profitability of the business. The borrower repays the loan on time and without difficulty, since his income increases significantly, and at the same time receives a large amount of profit.
Considering the types of financial investments, we can separately highlight operations on the securities market. By investing in various financial instruments, an enterprise takes part in the process of capital movement in the national economy. For example, by acting as an investor in another enterprise by purchasing shares, the organization helps optimize the activities of the issuer of these securities. However, financial investment in funds of subsidiaries can be separately considered as a separate type of the entire set of financial investments. By investing in shares of promising enterprises, the investor will receive significant financial benefits. The entrepreneur also has the opportunity to make profitable transactions with foreign exchange contracts.
Entrepreneurs are active participants in the foreign exchange market. Purchasing a currency at a rate that will increase in the future, and its further sale, can be considered a successful example of financial investment.
A less popular type of financial investment is long-term lending. Using borrowed funds over a long period involves high interest rates, and is therefore unprofitable for many enterprises.
Functions
Economists say that investing in one direction is very risky. An example of such a situation is investing free funds exclusively in bank deposits. In the event of the bankruptcy of a particular bank or the deterioration of the banking system, the likelihood increases that the investor will not only not increase his capital, but will also be left without the funds that were deposited in bank accounts. It is also not recommended to direct funds outside of circulation into shares of one enterprise. If the organization suffers permanent losses in the future, the investor's money will stop working.
Financial investment portfolio
All financial investments made by an economic entity can be combined into a so-called investment portfolio.
Forming a portfolio of financial investments gives the entrepreneur the opportunity to systematize all capital investments by amount, duration and risks. To consider in detail the structure of an organization's investment portfolio, you need to know what forms of financial investment exist.
It is worth considering that when forming a portfolio of monetary investments, an organization can enter foreign capital markets. This makes it possible to strengthen the production ties of enterprises around the world and contribute to the free movement of capital.
Accounting
Financial investment is a business transaction that requires strict accounting, regulated by PBU 19/02 of December 27, 2002. Investments are subject to requirements according to which they can be taken into account in the organization’s accounting records. The main acceptance criteria are:
- The right of an enterprise to invest funds and receive benefits must be documented.
- Operations that involve the transfer of all risks associated with a particular transaction. We are talking about the risks of bankruptcy of the debtor, changes in market conditions, and a decrease in the level of liquidity.
- Transactions that can bring economic benefits to the investor in the form of dividend payments, interest on deposits or an increase in the amount of capital.
Accounting for financial investments implies the division of all investment operations taking into account their duration. This approach allows you to make forecasts regarding the receipt of economic benefits from financial transactions performed for a specific period of time. Investing free money in financial instruments for a period that does not exceed twelve months is considered. If the investment period exceeds twelve months, we can say that it is long-term. All investment operations must be accounted for at the investor's actual costs for their implementation.
When accounting for investments, it is necessary to provide as much detail as possible about each financial transaction. Usually the name of the organization in whose securities the funds were invested, the number of securities, their nominal and real value are indicated. If we are talking about a deposit account, you need to take into account the name of the bank, the type of deposit, its term and amount, as well as interest payments.
In accordance with PBU 19/02 to financial investments relate:
state and municipal securities, securities of other organizations, incl. debt securities (bonds and bills);
contributions to the authorized capital of other organizations;
loans provided to other organizations (loans issued);
deposits in credit institutions;
receivables acquired on the basis of assignment of the right of claim;
contributions of the organization - a partner under a simple partnership agreement (joint activity);
Assets are accepted for accounting as financial investments subject to the simultaneous fulfillment of the following conditions:
availability of documents confirming the organization’s rights to financial investments;
transition to organizing financial risks associated with financial investments (risk of price changes, debtor insolvency, liquidity, etc.);
the ability to bring economic benefits (income) to the organization in the future in the form of interest, dividends or increases in their value.
Financial investments do not include:
own shares purchased from shareholders for resale or cancellation (accounted for in account 81 “Own shares (shares)”);
bills issued by the organization-issuer of the bill to the organization-seller when paying for goods, works, services (for the organization-seller they are accounted for in account 62, sub. “Bills received”);
investments in real estate and other property that has a tangible form and is provided by an organization for a fee for temporary use in order to generate income (accounted for in account 03 “Income-generating investments in material assets”);
precious metals, jewelry, works of art and other similar valuables acquired for purposes other than normal activities.
Assets such as fixed assets, intangible assets and inventories are not financial investments. They are recognized as financial investments only if they are made as a contribution to the authorized capital of another organization or under a simple partnership agreement.
Financial investments are an independent object of accounting. The accounting unit for financial investments is chosen by the organization independently. Such a unit can be a series, a batch of homogeneous financial investments. The organization is obliged to maintain analytical records of the types of financial investments and the objects in which they are made.
To prepare financial statements, financial investments are divided into:
long-term, which are produced for a period of more than 12 months. Reflected in the balance sheet in section I in the line “Financial investments”.
short-term, which are produced for a period of up to 12 months inclusive. Reflected in the balance sheet in section II in the line “Financial investments (except for cash equivalents).”
2. Assessment of financial investments
The following stages of movement of financial investments are distinguished: - acquisition of financial investments (acceptance of financial investments as used); - ownership of financial investments; - disposal of financial investments.
At each stage, different methods are used to evaluate financial investments
Acquisition of financial investments
Financial investments can be purchased on the primary or secondary market, received free of charge, or received from the founders.
At this stage, an initial assessment of financial investments is used, which means their initial cost. The initial cost of financial investments depends on the method of their acquisition: 1) the initial cost of financial investments acquired for a fee is the amount of actual costs for their acquisition; 2) the initial cost of financial investments made as a contribution to the management capital of other organizations - their monetary value, agreed upon by the founders; 3) the initial cost of financial investments received free of charge, for example, securities - or their current market value on the date of acceptance for accounting (if it can be determined, or this is the amount of money that can be received from the sale of these securities on the date of their acceptance for accounting if the market price is not calculated for them).
Financial investments are accounted for in active account 58 “Financial investments”. Sub-accounts can be opened for it: 1. Units and shares. 2. Debt securities. 3. Loans provided. 4. Deposits under a simple partnership agreement, etc.
Preliminary costs associated with the acquisition of financial investments are taken into account as part of the debt on account 76 “Settlements with various debtors and creditors”.
Paid from the current account for shares: Dt inc 76 Kt inc 51
Shares accepted for accounting: Dt sch 58/1 Kt sch76
Ownership of financial investments
At the stage of ownership of financial investments, their subsequent evaluation can be carried out, i.e. changes in their original value. For the purposes of subsequent assessment, all financial investments are divided into 2 groups: 1. Financial investments for which the current market value can be determined (stocks and bonds that are traded on an organized securities market). 2. Financial investments for which the current market value cannot be determined (shares and bonds that are not traded on the organized securities market, other debt securities, loans provided, investments in the authorized capital of other organizations, contributions under a simple partnership agreement and others ).
Subsequent assessment is carried out only for financial investments of group 1.
Financial investments of group 1 are reflected in the financial statements at the end of the reporting year at their current market value, by adjusting their valuation as of the previous reporting date.
This adjustment must be made at the end of the reporting year. However, by decision of the sub-company, this adjustment can be made monthly (indicate in the reporting policy).
The adjustment amount is applied to the financial result and is taken into account as part of other income and expenses on account 91 in correspondence with account 58.
An adjustment to the value of financial investments is reflected if their current market value increases (other income is recognized): Dt sch 58 Kt sch 91/1
An adjustment to the value of financial investments is reflected if their current market value decreases (other expenses are recognized): Dt sch 91/2 Kt sch 58
Financial investments of the 2nd group are reflected in the financial statements at their original cost; no subsequent assessment is made for them.
In business practice, situations sometimes arise in which depreciation of financial investments may occur.
Impairment of financial investments- sustainable significant reduction in the cost of financial investments.
PBU 19/02 provides examples of such situations:
Identification of signs of bankruptcy in the organization issuing securities;
Conducting a significant number of transactions in the market with similar securities.
If there are signs of impairment, the organization must check its financial investments. Such an audit is carried out on the market once a year as of December 31 of the reporting year. By decision of the organization, it can be carried out monthly or quarterly (indicated in the accounting policy).
If the impairment test confirms a sustained significant decrease in the value of financial investments, then the organization forms a reserve for the impairment of financial investments, account No. 59 under CT “Provisions for the impairment of financial investments.” The amount of the reserve is determined as the difference between the accounting value of financial investments (the cost at which they are reflected in the accounting system) and their estimated value. The reserve is included in the financial result as part of other expenses.
The creation of the reserve is reflected: Dt sch 91/2 Kt sch 59
The amount of the reserve is not shown in the balance sheet, but is deducted off-system (without accounting entries) from the corresponding item of financial investments.
If, after checking for impairment of financial investments, a further decrease in their value is revealed, then the reserve is adjusted upward: Dt sch 91/2 Kt sch 59
If, after checking for impairment of financial investments, an increase in their value is revealed, then the previously created reserve is adjusted downward: Dt sch 59 Kt sch 91/1
If there is no further steady decline in value, then the entire amount of the created reserve is included in the financial result: Dt inc 59 Kt inc 91/1
Disposal of financial investments
The disposal of financial investments occurs as a result of their repayment, sale, transfer to the authorized capital of another organization, gratuitous transfer, etc.
Upon departure financial investments for which the current market value is not determined, their cost is calculated by one of in the following ways:
at the initial cost of each accounting unit of financial investments (for example, upon disposal of financial investments in the form of contributions to the authorized capital of other organizations, loans provided to other organizations);
at the average initial cost (upon disposal of securities);
at the original cost of the first financial investments acquired (FIFO method). Used upon disposal of securities.
Upon departure financial investments by which the current market value is determined, their cost is determined by the organization based on from the last estimate.
For each group (type) of financial investments during the reporting year, one assessment method is used.
Disposal of financial investments is reflected using account 91 “Other income and expenses”. For example:
Receipts from the sale of securities are recognized:
Dt sch. 76 Kt. 91/1
The book value of securities is written off:
Dt sch. 91/2 Kt inc. 58
If financial investments of the second group for which an impairment reserve was created are disposed of, then the amount of the reserve is written off and charged to the financial result.