Wednesday 30 January 2019

What are securities meaning of investment

What are securities meaning of investment

The investment is the planting of cash outside the enterprises which can be either securities or other assets not used directly in the productive activities of the company. Investments can be made by buying stocks or bonds. Investment on the outside, these can be distinguished into two types, namely long-term investments and short-term investments (marketable securities).

The purpose of the short term investment in shares or bonds is to infuse cash while used in the company's business activities and is also used by the company to earn capital gains.

The purpose of long-term investment in shares or bonds to earn interest income or dividends in the long run. The company can also be used to control other companies through stock ownership.

Content (definition according to PSAK No. 50 year 2007)

Effect of (security) are securities, namely the letter of acknowledgment of debt, commercial paper, stock, evidence of debt, unit the inclusion of a collective investment contract, futures contract over the effects, and any derivatives of the effect.

The effect of debt (debt securities) is the effect that shows the relationship between creditor accounts receivable debts with the entity that issued the securities.

Equity (Equity Security) is an effect that shows equity ownership of a right, or a right to acquire (e.g. warrants, options) or the right to sell (e.g.: option selling) the ownership at a price that have been or will be set.

Investment accounting effects

  • At the time of the acquisition, the company should classify the effects of debt and equity into one of three groups:
  • Held to maturity (held to maturity), the debt securities according to the intent and the ability of the company will be owned up to maturity.
  • Traded (trading), debt securities purchased and owned primarily for sale in the near future to mengahsilkan Capital gains.
  • Available for sale (available for sale), debt securities which are not classified as securities owned until maturity or trade.
  • Effects that are classified in the group "held to maturity"

If the company has the intention to have the effect of debt to maturity, then investing in the debt effect should be classified in a group "held to maturity" and presented in the balance of the cost earnings after amortization of discount or premium.

The company may change from "has the effect of a specific debt up to maturity" by selling or transferring the debt effect. The sale or transfer of a debt is not considered the effects of the changes in the purposes of the "held to maturity" if such changes are caused by the following conditions:
There is evidence of a significant decline in corporate credit risk the issuer effects.

Taxation changes abolishing or raising the final tax rate applicable on interest from the effects of the debt (excluding the change in taxation revised tax rates on interest in General).

Sale or merger occurs in large numbers (like sales segment) which resulted in the need for the sale or transfer of securities in the group "held to maturity" to retain the credit risk of the company and position interest rate risks that exist at the moment.

There are changes in the requirements of the legislation or regulations that significantly change the definition of investments permitted or maximum level allowed investment in certain types of effects, so the company must divest securities in the Group held to maturity.

Changing government regulations concerning the minimum capital of a particular industry that resulted in the company reducing its business activity or the scale of its operations and sell securities in the Group held to maturity.

Changes in government regulations that result in the increase of the weight of the debt effect on investment risk in a specific ratio calculations, for example in the calculation of the solvency of the insurance company or the calculation of capital adequacy ratio banking.

In addition to the changes described above, other recurring events and exceptional nature which cannot be anticipated, it can cause the company to sell or transfer certain effects in a group of held to maturity, without having to the initial goal of questionable ownership effects in a group of held to maturity consider other effects in the same group.

The company may not classify the effects of debt into the group "held to maturity" If the company has the intention to have such effects for an unspecified period. Therefore, the effect of the debt should not be classified in this group if the company intends to sell the effect, for example, to deal with the changes in market interest rates and changes that are associated with the risk of a similar type, and for the needs of liquidity.

In the management of assets and liabilities of an entity, management can determine that the balance of the company's financial risk management can be achieved without having to provide the entire investment is in effect for sale at the moment required. In this case, the company may determine that certain debt effects are classified in groups held to maturity and will not be sold for the purpose of financial risk management. Based on the purpose of the ownership of the debt effect, companies can admit the debt effect with the method of cost of acquisition (including amortization of discount or premium).

Effects that are classified in the group "Trafficked" and "available for sale"

  • the investment effect of debt that is not classified in the "held to maturity" and equity the value normally have available, must be classified in one of the following groups and measured value of natural in the balance sheet:
  • "Traded". The effect is bought and owned for sale back in the near future should be classified in a group "trafficked". The effect of group "traded" usually indicates the frequency of purchases and sales which very often do. This effect was owned for the purpose of generating a profit from short-term price differences.
  • "Available for sale". Effects that were not classified in the category of "tradable" and in the group "held to maturity", are to be classified in the category "available for sale".
  • Fair Value Changes To Reporting

Profits or unrealized loss over the effects in the Group traded should be recognized as income. Profits or unrealized loss over the effects in the group available for sale (including effects that are classified as current assets) should be included as a component of equity are presented separately, and should not be recognized as earnings to date profit or loss can be realized.

For the third group of the effect, dividends and interest income, including amortization of premium and discount arising when the acquisition, is always recognized as income. This statement does not affect the method used to recognize and measure the amount of dividend and interest income. Profit or loss that has been realized to effects that are classified in the group available for sale or held to maturity also remained must be reported as income.

Change of Investment Groups

to investigate the effect of Moving note of natural values. On the change of the group, profits or unrealized loss should be recorded as follows:
  • For effects that moved from the group is traded, profit or unrealized loss on the date of the transfer has been recorded as earnings and therefore should not be
  • For effects that are transferred to the Group traded, profit or unrealized loss on the date of transfer is recognised as income at the time.
to effect the debt was transferred to the Group of available for sale from held to maturity, the profit or loss is recognized in unrealized equity group separately on the date of transfer of the group.
to effect a debt is transferred to the Group of available for sale from held to maturity, profit or unrealized loss on the date of transfer must still reported in the equity component separately, but should be amortized for the duration of the benefit effect in a manner that is consistent with amortization of discount or premium. Amortization of profit or unrealized loss would be commensurate with the influence of the amortization of premium or discount against interest income from securities in the Group held to maturity.

The Decline In The Value Of The Effect

For individual effects in the group available for sale or held to maturity, the company must determine whether a decline in fair value below the acquisition cost (including amortization of premium and discount) is the decline in permanent or not. If it is possible investors could not reclaim the full amount of the cost of the acquisition which is supposed to received in connection with the terms of the agreement, then the debt effect permanent decline is considered to have occurred.

If the decline in permanent decline is considered reasonable, the cost of obtaining individual effects must be lowered up to of natural value, and the amount of the impairment to be recognized in the income statement as loss that It has been realized. The new acquisition cost must not be changed back. The increase in the value of the next reasonable effect in the group available for sale must be entered into the equity component separately. The decline in the value of the next reasonable, if not a decline in the value of the temporary, should also be included in the equity component separately.


The company with the balance sheet assets are grouped into current assets, fixed assets and other assets-other obligations are grouped into short-term and long-term liabilities long (classified balance sheet) must be reported all the effects listed as current assets. The effect of Group held to maturity and available for sale in the group are presented as current assets or assets not smoothly based on decision management. Specific to the effects of the debt in the Group held to maturity and available for sale are due in the next year should be classified as current assets.

In the cash flow statement, the cash flow used for or originated from the purchase, sale, and maturing securities in the group available for sale and held to maturity, should be classified as cash flows investment activity, and reported the gross value for each of the groups of effects in the cash flow statement. Cash flow to or from the purchase, sale, and maturing securities in the Group traded should be classified as operating activities cash flow.


To securities in the group available for sale and held to maturity, the following information must be disclosed in the notes to financial statements for each of the major groups of effects:
  • reasonable value of the aggregate,
  • unrealized profits from the possession of the effects,
  • unrealized loss of possession of the effects,
  • the cost of the acquisition, including the amount of the premium and the discount are not yet amortized.
For the effect of debt in the group available for sale and held to maturity group, information on the due date the debt effects must be disclosed in the notes to financial statements last year were presented. Information about the due date can be grouped according to the time period from the date of the balance sheet. Financial institutions must disclose the value of the reasonable and the cost of the acquisition debt, including the effect of discount and premium which has not yet been amortized based on, at least, 4 groups of maturity date:
  • maturing in less than 1 year,
  • due in time between 1 to 5 years,
  • due in the period between 5 to 10 years,
  • maturing in over 10 years.
The effect is not due on a certain date, such as the effect that the payout of guaranteed mortgages, may be disclosed separately (not allocated into several groups of maturity). If its maturity is allocated, the basic allocation should be disclosed. For each accounting period, the company must disclose:
  • proceeds from the sale of securities in the group available for sale, profit and loss statement which is realised from the sales.
  • the basis of the determination of the cost of acquisition in calculating the profit or loss realised (e.g., identification, average, or other methods).
  • profit and loss statement entered as income from the transfer of a grouping effect of the group available for sale to the Group traded.
  • change in profit or loss unrealized possession to effect in the group available for sale that have been entered into the equity component separately during the period in question.
  • change in profit or loss possession of unrealized effects of effects for the purpose of the traded was recognized as income in the reporting period.
  • For any sale or transfer of securities in the Group held to maturity should be disclosed:
  • the amount of the accumulated amortization of discount or premiumnya for effects that are sold or transferred to another group,
  • profit or loss statement sales effect, neither of which has been realised and unrealized, and
  • the conditions that lead to take the decision to sell or move the effect groups.


  • All kinds of bonds:
  • If the terms of maturity: bonds and bond series.
  • The bond is a bond that matures at the same time.
  • The bond series bond maturity is the sequence in certain periods.
  • If the terms of guarantee: guaranteed bonds and bonds are not guaranteed.
  • Guaranteed bonds are bonds that provide a guarantee on the company's investors could not pay back a loan, the investor can claim to guarantee it.
  • Bonds are not guaranteed bonds do not provide a guarantee on the company's investors could not pay back a loan, the investor can claim to guarantee it.
  • The bonds are guaranteed by other parties (guaranteed bonds)
  • Bonds that can be exchanged for stock.
  • If the terms of its forms: bonds on behalf and bond coupons.
Bonds on behalf of the flowers can be taken only by the person whose name is registered so that if a sale should be reported to the company that issued the bond it is. Coupon bond is a bond that is free, not the name. Each piece is accompanied by a bond coupons as much as the date of interest payment. The coupons were used to take interest.

The purchase price is not always as big as bonds face value. The magnitude of the price is determined by the interest rate of the bond. The bigger the interest is, the higher bond prices and lower interest bonds, on the contrary, the lower the price. If the percentage of interest exceeds the interest rate on the bond market, the price of bonds will sell above face value (with agio), but when the price of the bond interest rate is lower than the interest rate on the market then the price below face value.

To determine the magnitude of the price of the bond can be done by calculating the cash value of the amount due plus the cash value of the interest will be accepted.

When bonds purchased between the date of interest payment, the buyer pays the purchase price plus interest running from the date of interest i.e. interest payments until the last date of the purchase of bonds. The interest payments it is price walking acquisition bonds.

The Exchange of the bonds

If bonds possessed exchanged for other securities, then investing in bonds account closed and opened a new investment account. Securities received note of prices on the Exchange, the difference with book value of bonds recorded as profit or loss.


investment in shares that are classified as long term investment that is typically done with a purpose as follows :
  • To keep an eye on other companies.
  • To obtain a fixed regular income each period.
  • To establish a special fund.
  • To ensure the continuity of supply of raw materials.
  • To maintain the relationships between the companies.
  • The method of recording stock capital based on PSAK No. 15:

The Method Of Cost Of Goods (Cost Method)

Investment stock in other companies who account for less than 20% and may not affect companies that are wholly owned by the method noted cost of goods. In this method of investing in stocks will be listed in the balance sheet of the price anyway. Market price changes are not recorded and recognized in profit or loss at the time the shares were sold. 

FASB Statement No. 12 States if capital investment made on stocks that are eligible to be called as the marketable securities, then the company can use the method of cost of goods or lower market price, as in the case of short term investment.

Methods Of Ownership (Equity Method)

By using this method, investments are recorded in the amount of the price anyway. The end of each accounting period, the price of the staple is modified according to the profit or loss of the acquired company owned. Dividends received from these shares are recorded reducing the account balances investing in stocks. Part of the profit or loss by the investor are recorded as profit or loss for the financial year in question.

The consolidated financial statements

In this way should be used when the investor has stakes in other companies more than 50% of the amount outstanding. In this case the parent company financial statements (parent company) should be consolidated with the report of the subsidiary company (subsidiary company).

Stock Purchase

Price anyway is the sum of all money paid in the purchase (price, exchange rate Commission fees, postage labels, etc.). This amount will be recorded with debits the accounts of stock investment.
If the share purchase done in a lump sum (together) then the purchase price allocation is done on the basis of the following:

  • If the market price of each stock is purchased, the allocation is based on a comparison of the relative amount of each stock.
  • If market prices known to only one type of stock, then the price of the stock market are known, are treated as the stock prices of the staple and the rest is the cost of goods in other types of stocks.
  • If the market price of each stock is purchased it is unknown, then the allocation price anyway suspended until one of the stock market price can be known.


Dividends received by shareholders in number depending on the number of shares owned. The receipt of dividends in the form of shares of the company which divided the so-called stock dividend stocks.

The critical point of marketable bonds

The presentation of the financial statements. Bonds are used as collateral or mortgaged to be disclosure.

Interest income from investments in bonds. Interest income to be received in the coming period and not to be its rights may be recognized as interest income in the period running.

The decline in value. Each should be evaluated at each reporting date to determine whether that investment has decreased the value (impairment) is not temporary. If that decline is not considered temporary, then the cost basis of any securities downgraded to grounded the cost of a new one. The amount of the decline was accounted as realized losses and therefore be included in the net profit. For impairment testing of bonds securities shown to determine whether "it is likely that investors will not be able to collect the entire amount payable according to the contractual terms".

Securities stocks, a factor that is taken into consideration is how long and to what extent reasonable value under the condition of the cost, the financial condition and prospects of short-term the issuer as well as the intention and the ability to retain investors investment company in order to allow it to perform a recovery of the reasonable value that had been anticipated. Impairment testing is used for stocks and bonds based on testing at reasonable value.

Transfers between categories. Transfers between categories of reasonable values are taken into account. If an available for sale securities transferred into investment owned until maturity, then this investment  (who owned it until maturity) are recorded on the date of transfer of the note of the value of the new categories is reasonable. If investment owned until maturity are transferred into investments available for sale, then a new investment (available for sale) are recorded at the value normally.

Reasonable value of the Controversy. The main issues arising include:
  • (a) Measurement based intention, bond securities can be classified as securities owned until maturity, available for sale, or trade. As a result, three identical securities bonds could have been reported by three different ways in the financial statements. In addition, the category was owned until maturity based only on mere intentions, which is a subjective evaluation. 
  • (b) trading profit, certain bonds can be classified as belonging to bonds until maturity and therefore a fee reported at were formed, while the bonds are securities that can be classified as available for sale and reported on the value of natural with the profits or losses are unrealized profit is reported as other comprehensive. 
  • (c) the liability was not assessed reasonably, if an investment securities should be reported at the value normally, then the liability must also be the case.

The Critical Point of securities stocks

  • Ownership, securities in the company really belongs to the company.
  • Assessment, the stock is graded correctly in accordance with the existing conditions.
  • Registration/recognition of income Dividends, dividend income will be received in the coming period may have been recognized as dividend income from running the company.
  • Events/unusual Transactions, the influence of the financial crisis that occurred in a State that could affect the State of the company.
  • A change in accounting, the accounting change may not necessarily be followed in the recording made by the company so that it can give rise to the existence of over or understated.

No comments:

Post a Comment