2nd year Financial Accounting 2 - Seminar 6

Short term Investments

Short term investments (in Romania) comprises of:

501 Shares in affiliated entities
505 Redeemed bonds (issued by the company)
506 Bonds (issued by others)
507 Green certificates received
508 Other short term investments and related receivables
5081 Other short term financial investments
5088 Accrued interest on bonds and short term investments
509 Amounts payable for short term financial investments
5091 Amounts payable for shares in affiliated entities
5092 Amounts payable for other short term financial investments

The disclose of financial investments in the financial statements (balance sheet) as non-current or current assets
depends on the purpose of such investments and the period for which they are held (short term or long term).

Long term bank deposits are disclosed as non-current financial assets and short term bank deposits as short term
(financial) investments.

Initial evaluation: short term investments are evaluated at acquisition cost or a contract value (if the instruments are
not bought from the market but rather based on a contract signed with an issuer of that instrument).
Short term bank deposits in foreign currency are recorded in RON the official foreign exchange rate.
Financial instrument listed on a stock exchange => Trade expenses => NOT included in the acquisition cost
Financial instrument NOT listed on a stock exchange => Trade expenses => included in the acquisition cost

Disclosure in the financial statements:

Financial instrument listed on a stock exchange =>Balance Sheet =>official quotation on the stock exchange
Financial instrument NOT listed on a stock exchange =>Balance Sheet =>Carrying amount (cost-impairment)

Recognition as expense (when the financial instruments are removed from the books)
Financial instruments are removed from the books at their entry value or any other value at which they are recorded in
the books (except for short term bank deposits). The transfer to expenses is established using FIFO, LIFO or WAC. Any
recorded impairment related to financial instruments is transferred to revenues.

Accounting for short term investments

Please note: The sale of a short term investment is recorded in one recording in which we record the gain/loss arising
from the sale of financial instruments.
IF sale price > cost =>GAIN = sale price – cost / IF cost > sale price => LOSS = cost – sale price
Any short term shares received without payment (increase in the issuer’s capital) are recorded as a revenue (768 “Other
financial revenues”)

Course&Seminar Lect.univ.dr. Vasile CARDOŞ, e-mail: vasile.cardos@econ.ubbcluj.ro, office: 226

Application 1 – Short term investment in affiliates (>50%+1 share)
Record for Profi Holding PLC. the following transactions: NOT LISTED COMPANY
1. 06.May.2019 purchases for trade purposes (short term) 10.000 shares issued by its affiliate, Profi Sport PLC, for
4,3 lei/share. 5.000 lei are paid in cash on the spot. (liability 10.000 sh x 4,3 – 5.000 lei)
2. 16.May.2019 The owed amount for the acquisition of shares is paid by bank transfer;
3. On 30.July.2019 4.000 shares are sold for 5 lei/share, on account (credit);
4. 3.August.2019 the sale receivable is settled by bank transfer.
5. 25.September.2019 3.000 shares are sold for 4 lei/share, settlement on the spot by bank transfer.
6. 31.December.2019 the market value of the shares is 3,5 lei. (cost 4,3 > current value 3,5 => impair= 4,3-3,5)
7. 18.February.2020, Profi Holding PLC sells 1.000 shares for 3,8 lei/share (settlement on the spot by bank transfer)
8. 18.February.2020 The impairment loss for the sold shares is transferred to revenues (reverted)
9. The remaining 2.000 shares (initially held for short term) are transferred to non-current financial assets.
10. 18.February.2020 The impairment loss for the remaining shares is reclassified.
Accounts
Op Date Details Amounts
DEBIT CREDIT
1 06.05.19 Purchase of shares in affiliated company

2 16.05.19 Liability settlement 38.000 by bank transfer

3 30.07.19 Sale 4.000 x 5 lei/share

4 03.08.19 Receivable settlement by bank transfer

5 25.09.19 Sale 3.000 x 4 lei/share

6 31.12.19 Recording impairment (4,3-3,5) x 3.000 sh

7 18.02.20 Sale 1.000 shares x 3,8 (cost > sale price)

8 18.02.20 Decrease impair (1.000 sh x 0,8)

9 18.02.20 Transfer shares from short -> long term
10 18.02.20 Transfer impairm from short -> long term

Accounts to be used
261 “Shares in affiliated entities (long term)” A 5311“Petty cash” A
461 “Other receivables” A 5121 “Cash at bank” A
501 “Shares in affiliated entities (short term)” A 6642 “Losses on disposal of short term financial investments”
591 “Impairment of shares in affiliated entities (short term)” L 6864 “Impairment losses on financial current assets”
2961 “Impairment of investments in affiliated entities (long term)” L 7642 “Gains on disposal of short term financial investments”
5091 “Amounts payable for shares in affiliated entities” L 7864 “Reversal of write-down of financial current assets impair.”
2019
D 501 “Shares in affiliates” A C D 591 “Impairment…” C

ASSETS SFP 31.12.19

Shares in affiliates…………………………
(Cost _______ – Impairment _____)
2020
D 501 “Shares in affiliates” A C D 591 “Impairment…” C

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Application 2 – Short term investments (listed on a stock exchange)
Record the following transaction for Last G.O.T. LLC.
1. 27.Jun.2018 purchase (short term investment) 20.000 shares of OMV Petrom S.A. listed on Bucharest Stock
Exchange at a quotation of 0,3 lei/share (settled on the spot by bank transfer).
2. The broker’s commission of 1% is paid by bank transfer.
3. On 19.July.2018 the company receives 500 shares (quotation 0,32 lei/share) as OMV Petrom S.A. increased the
shared capital with the existing retained earnings.
4. 31.Dec.2018 the quotation is 0,3050 lei/share.
5. 15.Jan.2019 8.000 shares are sold for 0,2805lei/share.
6. 29.Mar.2019 10.000 shares are sold for 0,3685 lei/share.
Accounts
Op Date Details Amounts
DEBIT CREDIT
1 27.06.18 Purchase of Shares OMV Petrom SA
2 27.06.18 Payment of broker’s commission 1% x 6.000
3 19.07.18 Receiving shares (500 sh x 0,32)
4 31.12.18 Increase in value (↑fair value) 0,305 - 0,3005
5 15.01.19 Sale of share 8.000 x 0,2805 (FV 0,305)
Cash: 8.000 x 0.2805
Loss (0.3050 -0.2805) x 8.000 = 196
6 29.03.19 Sale 10.000 x 0,3685
Cost 10.000 x 0,3050 = 3.050
Gain (0,3685 – 0,3050) x 10.000 sh = 635
Accounts to be used
5081 “Other short term financial investments” A 6642 “Losses on disposal of short term financial investments”
5121 “Cash at bank” A 7642 “Gains on disposal of short term financial investments”
622 “Commissions and fees EXP” 768 “Other financial revenues”, 76XX Gain from increase to fair value

http://bvb.ro/FinancialInstruments/Details/FinancialInstrumentsDetails.aspx?s=SNP

D 5081 “Other shares” A 2018 C E IS 2018 R

Fair value =
ASSETS SFP 31.12.18
Other short term inv __________________
(Fair Value_______)

D 5081 “Other shares” A 2019 C E IS 2019 R

Application 3 – Bonds
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Record for Safe Invest LLC the following transactions:
1. 01.July.2019 purchase from the primary market (through the broker: Invest Bank) of 80.000 bonds with 9 month
maturity for 10 lei/bond (on account -credit-)
2. 03.July.2019 the debt is settled by bank transfer.
3. 01.Oct.2019 sale of 30.000 bonds for 10,11 lei/bond (on the secondary market -Bucharest stock exchange-)
4. 31.12.2019 the interest to be received for 2019 is recorded (The interest rate is 4%/year and is paid by the issuer at
maturity). 4.2 interest to be received for Jan-March 2020 (accrued interest)
5. On maturity (30.Mar.2020) the company deposits the bonds with the issuer and receives their countervalue of
50.000 bonds (x10/bond) and the entire interest.

Accounts
Op Date Details Amounts
DEBIT CREDIT
1 01.07.19 Purchase of 80.000 bonds x 10 lei/bond
2 Debt settlement by bank transfer
3 Sale of 30.000 x 10,11
Cost of bonds = 30.000 x 10
Gain (10,11-10) x 30.000
4.1 31.12.19 Interest accrued for 2019 (Jul-Dec) 6mth
4.2 Jan-Mar Interest accrued Jan-March 2020 3 mth
5 30.03.20 Cashing countervalue of bonds and interest

Accounts to be used
506 “Bonds” A 5121 “Cash at bank” A
5088 “Accrued interest on bonds and short term investments” A 766 “Interest revenues”
5092 “Amounts payable for other short term financial investments” L 7642 “Gains on disposal of short term financial investments”

Application 4 – Short term deposits HOMEWORK – discuss next week

Easy MoneyLLCmakes on 01.Mar.2019 a short term (3 mth) deposit at New Bank of 20.000 EUR, at a 6% interest rate. The
interest is recorded at the end of each month and cashed at maturity (31.05.2019). The official exchange rate was as
follows: 01.Mar.2019 4,74 RON/EUR, 31.Mar.2019 4,76 RON/EUR, la 30.Apr.2019 4,75 RON/EUR, 31.May.2019 4,73
RON/EUR.
Accounts
Op Date Details Amounts
DEBIT CREDIT
1 01.03.19 Recording shor term deposit 20K EUR x 4,74
2 31.03.19 Update value in lei (4,76 – 4,74) x 20K
3 31.03.19 Interest month 1 (20K x 4,76 x 6%/12)
4 30.04.19 Update value in lei (4,76 – 4,75) x 20K
5 30.04.19 Interest month 2 (20K x 4,75 x 6%/12)
6 31.05.19 Closing the deposit (4,73)

7 31.05.19 Cashing the interest for Mar and Apr.

8 31.05.19 Cashing the interest for May.

Accounts to be used
5124 “Cash at bank in foreign currency” A 6651 “Foreign exchange losses”
5081 “Other short term financial investments” A 7651 “Foreign exchange gains”
5088 “Accrued interest on bonds and short term investments” A 766 “Interest revenues”

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