Group 5

Jigs Parco
Lance Rivera
Mikael Agbayani
Nia Malagueo

INVESTMENTS

INVESTMENTS
Investments are assets held by an
entity for the accretion of wealth through
distribution such as interest, royalties
dividends and rentals, for capital
accretion or for other benefits to the
investing entity such as those obtained
through trading relationships.

INVESTMENTS

An asset or item that is purchased with the hope that it

will generate income or appreciate in the future. In an
economic sense, an investment is the purchase of goods
that are not consumed today but are used in the future to
create wealth. In finance, an investment is a monetary
asset purchased with the idea that the asset will provide
income in the future or appreciate and be sold at a higher
price.
Can be short term or long term
Should not be involved in normal operations
Auxiliary
For collection of wealth
The moment you give your money to the investee,
revenue is recognized

PURPOSE OF INVESTMENTS

For Accretion of wealth or regular income through interest,

dividends, royalties and rentals.
For Capital Appreciation as in the case of investments in
land for real estate held for appreciation and direct
investments in gold, diamonds, and other precious
commodities.
For ownership control as in the case of investments in
subsidiaries and associates.
For meeting business requirements as in the case of
sinking fund, preference share redemption fund, plant
expansion fund and other noncurrent fund.
For protection as in the case of interest in life insurance
contract in the form of cash surrender value.

WHY COMPANIES INVEST?

Most companies generate cash from
their cash from their operations. This
cash can be used for the following
purposes:
Investing in current operations
Investing in temporary investments to
earn additional revenue
Investing in long-term investments in
stock of other companies for strategic
reasons

INVESTING CASH IN CURRENT OPERATIONS

Cash is often used to support the current

operating activities of a company.
To support its current level of operations, a
company also uses cash to pay:
Expenses
Suppliers of merchandise and other assets
Interest to creditors
Dividends to stockholders

INVESTING CASH IN TEMPORARY

INVESTMENTS

A company may temporarily have

excess cash that is not needed for use
in its current operations. Instead of
letting excess cash remain idle in a
checking account, most companies
invest their excess cash in temporary
investments. In doing so, companies
invest in securities such as:

ACCORDING TO VALIX
Investments include the ff.
Trading Securities
Investments in Equity Securities
Investments in Bonds
Investment in Associate
Investment in Subsidiary
Investment Property
Investment in Fund
Investment in Joint Venture

2 TYPES OF INVESTMENTS

Investing in Temporary Investments:

Current investments are investments that are
by their very nature readily realizable and are
intended to be held for not more than one
year.
Investing Cash for Long-Term
Investments: Non-current or long-term
investments are investments that are held for
more than one year or are not expected to be
realized within twelve months after the end of
the reporting period.

CHARACTERISTICS OF FINANCIAL INSTRUMENTS

There must be a contract

There are at least two parties to be
contract.
The contract shall give rise to financial
of one party and financial liability or
equity instrument of another party.

FINANCIAL INSTRUMENTS

Cash in the form of notes and coins

Cash in the form of checks
Cash in bank
Trade accounts
Notes and Loans
Debt Securities
Equity Securities

CASH IN THE FORM OF NOTES AND

COINS
This is a financial asset of the holder or
bearer and a financial liability of the
issuing government.

CASH IN THE FORM OF CHECKS

This is a financial asset of the payee

and a financial liability of the drawer or
issuer.

CASH IN BANK
This is a financial asset of the depositor
and a financial liability of the depository
bank.

TRADE ACCOUNTS
This is a financial asset of the seller as
accounts receivable and a financial
liability of the customer or buyer as
accounts payable.

NOTES AND LOANS

This is a financial asset of the lender or

creditor as notes receivable or loans
receivable and financial liability of the
borrower or debtor as notes payable or
loans payable.

DEBT AND EQUITY SECURITIES

Financial Assets that are often traded on

public exchanges
Some are valued in the accounting records
and financial statements at fair market value.
Has maturities
Earned through interest, trading gains,
marking to market
Classified as:
1.
2.
3.

Trading Securities
Available-for-sale Securities
Held-to-maturity Securities

TRADING SECURITIES

Debt and Equity securities that are purchased

and sold to earn short-term profits from
changes in their market prices
Often held by banks, mutual funds, insurance
companies and some Financial Institutions
Reported as a current asset on the balance
sheet
Valued at market
Its intention is to realize profit through trading
Effect of MTM: Profit/Loss

AVAILABLE-FOR-SALE SECURITIES

Debt and Equity securities that are

neither held for trading, held to
maturity or held for strategic reasons
Valued at market
Effect of MTM: Direct adjustment to the
Equity

DEBT SECURITIES

This is a financial asset of the investor

and a financial liability of the issuer
Represents creditor relationship with an
entity. A debt security has a maturity
date and a maturity value.

HELD-TO-MATURITY SECURITIES

Debt investments, such as notes or

bonds, that a company intends to hold
until their maturity date
Primarily purchased to earn interest
revenue
Recorded at their amortized cost
Its intention is to collect the Principal
and Interest
No effect on the MTM

EQUITY SECURITIES

This is a financial asset of the investor

and an equity of the issuer.
It represents ownership shares and
rights, warrants or options to acquire or
dispose of ownership shares at a fixed
or determinable price.

SOURCES

http://en.wikipedia.org
http://www.cliffsnotes.com/moresubjects/accounting/

RESOURCES
Accounting Principles Using Excels for
Succes
Author: James Reeve, Johan Duchac, Carl
Warren

Financial Accounting Volume one 2013

edition
Author: Conrado Valix, Jose Peralta,
Christian Aris Valix