How to log invesments into stock market, index funds and shares in other companies?

[alid]

Hi QF Team,

How do you log into QF, investments as a limited company into other companies, stock market shares, index funds etc.? Just to be clear, the investor in this position is the limited company and investing from its profits into stock market or index funds via a brokerage firm.

Thanks
ad

[Darren_Smith]

Hi,

The answer to your query is somewhat involved, but I’ll try to keep it brief!

If a company purchases equity in other companies, how they are recognised and valued depends on whether the buyer intends to hold the investment for the long term, or to ‘trade’ the investment for in the short term.

If the investment is planned to be ‘traded’ in the short tern then it is recorded in the accounts as what is known as Fair Value through Profit or Loss (FVTPL).

If for the long term, it can be, if so wished, recorded as Fair Value through Other Comprehensive Income (FVTOCI).

The buyer is supposed to make the choice between FVTPL or FVTOCI when making the investment and it is not supposed to be changed, it is supposed to be an irrevocable option.

On a bookkeeping level, the difference between FVTPL and FVTOCI is that if using FVTPL then the transaction costs (broker fees) are treated as an expense on the SPL, whereas in FVTOCI transaction costs are added to the opening value of the investment.

To give an example, say you had this:

To record this in QF I would make two new chart of account codes.

Then to record the investment using FVTPL you can do this:

Or to record the investment using FVTOCI you can do this:

At your year end, the value of your holdings would be found using fair value and gains or losses would be accounted for at that time.

Last thing to note, investments in derivatives are always treated as FVTPL.

Sorry it wasn’t so brief after all !!

Hope this helps a bit

[alid]

Hi Darren,

That’s a great response! Detailed and informative. Thank you so much for being generous with your time:)

[Vistaro]

I’m facing a similar situation and grateful for the response.

Just to build on the question which sections of the nominal code structures would you enter the purchases (and later sales) in?

I’d assume the transaction costs (based on short term investing would just be a normal bank charge.

Lastly I assume it would be pragmatic to take a valuation of the holdings on a regular basis and simply enter the change in value from the previous period to current period so that the balance sheet reflected the value - again which section of the QF N/c structure would this sit in?

Thanks all