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There are four major categories for non-influential investment and securities. These include the available-for-sale securities, held-to-maturity securities and held-for-trading securities.
The available-for-sale securities describe debt or equity securities that an investor purchases with the intention to gain profit by selling them before their stipulated maturity date or before a lengthy period for securities without a maturity date. Accounting standards do not recognize the available-for-sale (AFS) securities as trading assets (Warren et al., 2005). In this regard, changes in market rates above the purchasing value of these AFS securities do not affect the current period’s income, but are components of the comprehensive income.
These are debt investments held by investors until they reach the stipulated maturity date. Thus, the purpose for purchasing held-to-maturity securities is to generate interest. These securities are fixed-income assets and rarely affected by changes in the market price. The returns associated with held-to-maturity securities depend on the predetermined period of maturity. Thus, market-price changes do not have any impacts on the value of held-to-maturity securities. While the interest derived from these securities influences the income statement, the evaluation of any gains or losses occurs in the comprehensive income analysis (Wild et al., 2007). Depending on the period of maturity for held-to-maturity, securities may reflect on different section of a balance sheet. Securities that mature within a year appear on the current assets section, while those that mature within a period longer than a year appear on the non-current assets section of the balance sheet.
These are debt and equity investments that investors buy and sell within a short period. Accounting standards classify held-for-trading securities as short-term assets. In this regard, gains or losses derived from these securities affect the gains and losses on an income statement. Fluctuations in market prices have significant effects on the returns generated from held-for-trading securities (Warren et al., 2005). These securities are components of a portfolio due to their associated trend of short-term profit making.