Classification of Investments: The investments are classified on the basis of the two factors to be considered – 1. Intent of the company 2. Length of time for which it will be held. The three categories for investments are – i. Trading investments (Short-term investment) The debt and equity securities investments will be classified as trading securities if they are purchased with an intention to be sold in a short time of their purchase. Suppose, 3 months or 4 months i.e. held with an intention to be sold in a short period. ii. Available-for-sale investments (Long term as well as short term investment) The debt and equity securities investments will be classified as available-for-sale investments if they are purchased with an intention to be sold in a longer time period say, more than a year. By default all the investments are classified as available-for-sale investments. iii. Held-to-Maturity (Long term investment) Held-to-maturity investments are the investments that are purchased with an intention to be held till maturity. When a purchase is made with an intent that it will be held till maturity, it will be classified as held-to-maturity investment. Thus, short term investments include the investments which can be easily liquidated into the cash and are held with an intention to be sold within a short-term period. All the held-to-maturity investments will be considered as long-term investments. To classify: Classification of statements as long-term investments.

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Chapter 15, Problem 1QS

To determine

Concept Introduction:

Classification of Investments:

The investments are classified on the basis of the two factors to be considered $-$

1. Intent of the company

2. Length of time for which it will be held.

The three categories for investments are $-$

i. Trading investments (Short-term investment)

The debt and equity securities investments will be classified as trading securities if they are purchased with an intention to be sold in a short time of their purchase. Suppose, 3 months or 4 months i.e. held with an intention to be sold in a short period.

ii. Available-for-sale investments (Long term as well as short term investment)

The debt and equity securities investments will be classified as available-for-sale investments if they are purchased with an intention to be sold in a longer time period say, more than a year. By default all the investments are classified as available-for-sale investments.

iii. Held-to-Maturity (Long term investment)

Held-to-maturity investments are the investments that are purchased with an intention to be held till maturity. When a purchase is made with an intent that it will be held till maturity, it will be classified as held-to-maturity investment.

Thus, short term investments include the investments which can be easily liquidated into the cash and are held with an intention to be sold within a short-term period. All the held-to-maturity investments will be considered as long-term investments.

To classify:

Classification of statements as long-term investments.

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