Held for Trading Investment

A held of trading investment (also known as short-term marketable security) is a financial asset that is readily marketable and is purchased with an intention to generate short-term gain.

A held for trading investment is reported at its fair value on the balance sheet and any change in fair value during a period and any dividend or interest income over the period is recognized in profit and loss for the period.

Example

On 1 January 2012, HTI Ltd. acquired 10,000 shares of FV Ltd. at $55 per share. It will record the transaction by the following journal entry:

Investment in HTI Ltd.550,000
Cash550,000

The investment will be reported at $550,000 on the balance sheet.

During the financial year ended 31 December 2012, FV Ltd. declared a dividend of $0.9 per share. HTI Ltd. will record the dividends earned as follows:

Cash9,000
Dividends Earned9,000

As at 31 December, 2011, the market value of a share of FV Ltd. fell to $49 per share representing a loss of $6,000 [($55-$49)*10,000]. HTI Ltd. will recognize the reduction in fair value immediately:

Loss on held for Trading Investments6,000
Investment in HTI Ltd.6,000

by Obaidullah Jan, ACA, CFA and last modified on

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