Long Term Investments

Valuation Of Long Term Investments

Enterprise are expected to carry long term investments at either current market value or historical cost. When a long-term investor chooses to hold investments at market value, that value is assumed to be kept current.

The amount of any rise in the current value is instead recorded as surplus on revaluation and taken to a revaluation reverse under market value, as it is not suitable to account for any increase in the current value as a realized profit for the time.

The current market value of long term investment is of less immediate relevance as the investor does not intend or is unable to secure that value by their disposal. As much, long term investments are usually carried at historical cost.

The carrying amount of an investment should be written down to reflect the loss when there has been a significant fall in value over time. The income statement ought to be charged with such a reduction. When the value of the investment increases, even temporarily, or if the circumstances that led to the reduction are no longer present, reductions in carrying amount may be reversed.

An increase in carrying amount arising from the revelation of long term investments should be credited to owner’s equity as revelation surplus. To the extent that a  decrease in carrying amount offsets a previous increase, for the same investment that has been credited to revelation surplus and not subsequently reversed or utilized, it should be charged against that revelation surplus rather than income.

Increases on revelation that are directly attributable to declines in carrying amounts for the same investment that were recorded as income in the past should be credited to the degree that they cancel out the declines. Investment properties are typically evaluated at market rates and frequently revalued on a regular basis.

Gains And Losses On Sale Of Investment

The gain or loss on the sale of an investment is typically included to the income statement for the period in which the investment was sold. The difference between the proceeds of the sale after expenses and the item’s carrying amount is used to calculate this profit or loss. The amount of the increase is moved to income if the investment sold had previously undergone revaluation and the rise in the carrying amount has been credited to and still exists in a revaluation surplus account inside the owner’s equity.

When only part of an investor’s holding of a particular investment is disposed off, the carrying amount of the part sold will be calculated on the basis of the average carrying amount off the total holdings.

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