Many companies purchase investments in the form of shares or debentures to earn income or to utilize cash surpluses profitably. The normal investments a company has are:
Investments are also classified as quoted and unquoted investments. Quoted investments are shares and debentures that are quoted in a recognised stock exchange and can be freely traded. Unquoted investments are not listed or quoted in a stock exchange. Consequently, they are not liquid and are difficult to dispose of.
Investments are valued and stated in the balance sheet at either the acquisition cost or market value, whichever is lower. This is in order to be conservative and to ensure that losses are adequately accounted for.
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- Trade investments - Trade investments are normally shares or debentures of competitors that a company holds to have access to information on their growth, profitability and other details.
- Subsidiary and associate companies - These are shares held in subsidiary or associate companies. The large business houses hold controlling interest in several companies through cross holdings in subsidiary and associate companies.
- Others - Companies also often hold shares or debentures of other companies for investment or to park surplus funds.
Investments are also classified as quoted and unquoted investments. Quoted investments are shares and debentures that are quoted in a recognised stock exchange and can be freely traded. Unquoted investments are not listed or quoted in a stock exchange. Consequently, they are not liquid and are difficult to dispose of.
Investments are valued and stated in the balance sheet at either the acquisition cost or market value, whichever is lower. This is in order to be conservative and to ensure that losses are adequately accounted for.
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