Investments in intercorporative marketable securities can be classified according to the percentage of ownership over the company from which those securities are being acquired.
Intercorporative marketable securities investments are securities investments between companies. Since there are several types, we will proceed to their classification. Likewise, we will explain the characteristics of each of the categories.
Categories of investments in negotiable securities between companies
The classifications of investments in negotiable securities between companies are as follows:
- Investment in financial assets:Control percentage is less than 20%. It is considered as a passive investment. This is due to the fact that the capacity of influence of the acquiring company on which its shares are acquired is practically nil.
- Investment in associated companies: Control percentage between 20% and 50%. Although this classification is considered as an investment without relevant control, the acquiring company can exert a significant influence as follows:
- Obtaining representation in management.
- Influence on the policy and corporate governance of the company
- Take advantage of the human resources of the acquired company
- Influence material transactions
- Technological dependence
- Business combination:Control percentage greater than 50%. When the percentage of ownership exceeds 50% if an investment with control capacity is considered.
The control exercised based on the percentage of ownership is considered relative. In some cases, despite having a participation of less than 20% in a company, greater control can be exercised. This is because the company that acquires the shares can contribute a know-how (know-how) , a new technology or a production method with greater effectiveness than the one owned by the acquired company.
Accounting treatment of investments in negotiable securities between companies
Based on the three previous classifications, the accounting treatment would be as follows:
Investment in financial assets
- Securities held until maturity:They are fixed income securities that by their nature, the company wants and is able to hold until maturity. These securities, except for special circumstances, cannot be sold until expiration.
These values are accounted for in the balance sheet at amortized cost.
- Securities held for sale:They are fixed and variable income securities that the company carry out with a somewhat more speculative character and could sell at some point.
They are classified in the balance sheet at their fair value. The gains made in their value are classified in the income statement while those not realized are classified in the statement of changes in equity.
- At fair value through the profit and loss account:Within this classification there are two subclassifications:
- Kept to negotiate:They are investments in fixed income and variable speculative securities through which the company intends to obtain a profit in the short term.
- Accounting for fair value:Treatment similar to the previous classification.
Investment in associated companies
Marketable securities classified under this category are accounted for at cost and reported on the balance sheet as a non-current asset. In subsequent periods, the proportional part of the profits / losses of the acquired company to which the acquiring company is entitled will increase or reduce the account associated with this investment and will be recognized in the profit and loss account.
Currently, the method used to account for a business combination is the acquisition method.
Under this method if, for example, company A owns 80% of the shares of company B, company A would report 100% of the assets and liabilities of company B as its own. The remaining 20% that would not correspond to company A would be classified as minority interests.