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.
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|
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:
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 Investments||6,000|
|Investment in HTI Ltd.||6,000|