Financial assets are allocated to the fixed assets of companies. In the balance sheet, they represent the values that are invested on a permanent basis. These investments may take the form of securities or have similar structures. The main thing is that they are held for the long term and are not changed. It is also special that financial assets are not written at any scheduled depreciation. In this way, they can also be subject to large fluctuations in value, multiply or fall, as is the case with share prices.
The term financial investment must not be confused with an investment or an investment. At least not in the true sense. When we talk about financial assets, they are always operations in an enterprise. In a private sense, an investment would also be called an investment, but not a financial investment. It describes the financial investment in securities, shares or participation in an enterprise.
Financial assets are written to the assets side in a balance sheet. In addition, they may belong either to current assets or to fixed assets. This is where the planned investment period is important. Furthermore, a distinction is made within financial assets according to the type of influence.
Participating in other companies can be a kind of financial asset for a company. For example, a company may have shares in corporations, but also in shares or deposits. The investment can generate various revenues in order to make the plant profitable. In addition, the company also secures a diverse influence at other companies.
Those who prefer to do so without participation invest in shares or securities and investment shares. In fixed assets, these are in the position “securities”. Here, too, earnings and profits are to be expected.
Loans are actually only financial claims, such as loans or mortgages taken out. If the company takes out a loan for an investment, this sum is one of the financial assets. Excluded from this are claims from deliveries or services not yet provided. So all in one means financial assets. In practice, securities are generally popular, but also investments in companies are not uncommon. Depending on whether the company wants to exert some influence or whether it is purely concerned with the returns.
Property, plant and equipment does not belong to financial assets, as they represent a certain value but do not include fixed assets. Unlike securities that are allocated to current assets and financial assets. For this to happen, it depends on how the securities are treated. The use and duration of the posture are therefore decisive. They are referred to as fixed assets when they are used for permanent business operations. Shareholdings in other companies are also about building a closer partnership. Here’s a bigger strategy behind fixed assets.
Current assets, on the other hand, mean that the securities are for trading only. So if a company plans to sell the securities in a few years, they will still be part of the current assets. Once mapped, this is usually not changed. If you want to move current and fixed assets among themselves or change the allocation, special arrangements and a certain amount of effort are required.
In very large companies, there is usually also a larger wealth in the area of financial assets. Even if the company has nothing to do with securities and shares. For example, the automotive groups Volkswagen and Porsche are closely intertwined and support each other. Each group owns shares in the other company. This is certainly not about short-term returns, but about long-term cohesion and wealth building. Since these are, of course, competitors, takeovers or lasting influence have repeatedly become a contentious issue in the past. These reciprocal participations must be maintained on the balance sheet.
Securities or shares are not generally depreciated. However, unusability also plays a role in whether the goods still occur in depreciation. The goods used, such as machines or other objects, are therefore abusable. In the case of tangible goods within a company, these are written off piece by piece, as this is a wear and tear. This wear and tear is written off as a loss, as the value of tangible goods decreases with. This is not the case with equities, because they can grow or change all the time.
In short, financial assets are not a deusable asset and therefore cannot be depreciated. This would not be correct under commercial law or tax law. The financial assets shall be listed at most in the unscheduled depreciation. However, only if the securities show an impairment that occurs permanently. This happens, for example, in the case of insolvency, when the company in which you are involved goes through insolvency.
Financial assets are compared and measured using acquisition costs. If eur 10 million were to be invested in another company, it would be precisely this EUR 10 million that would have to appear on the balance sheet. In the case of securities whose value fell at the time of the balance sheet, this would remain untreated. After all, it is assumed that all shares can rise again and only fluctuate at the present time. A negative price fluctuation therefore does not constitute a reason to assign the financial asset to permanent depreciation.
According to commercial law, there is no legally defined definition of when a financial asset is subject to a permanent impairment. From a tax point of view, there may also be a permanent impairment loss for assets that are not abused and invested. But when exactly is there a permanent impairment of a financial asset? And how are the fluctuations of stocks to be treated when they both rise and fall?
In general, for example, auditors question whether the value of a stock has fallen by more than 20 in the last 6 months. Furthermore, whether the value has fallen by more than 10 in the last 12 months. If this is not the case, no depreciation can be made. If, on the other hand, a difference could be identified, depreciation is possible from a commercial point of view. If the values then rise again, an attribution must be given, since a permanent impairment is no longer present. The acquisition value may change.
Tax law shall check whether the market value at the balance sheet date has fallen by more than 5 under the date of the share purchase. We are also talking here about a small border. It shall be audited at each cut-off date of the balance sheet. Of course, increases have to be offset again. In this case, the taxable person is even obliged to make a reversal of the value.
Financial assets of companies have little to do with speculative behaviour. It is much more likely that there is a certain risk that companies take. And you can still be so strategic, smart and careful, there is always a residual risk with an investment.
For example, anyone who invests in another company and invests in it will have to worry about possible bankruptcies. Although the losses can be claimed as permanent depreciation, such an approach is annoying. Stocks and securities may also lose their value or even mean a total loss. Nevertheless, long-term investments can rise again or fluctuate again later. In this case, therefore, it is important to think carefully in advance about the type of investment in which it is invested. Nevertheless, the higher the risk, the higher the long-term returns.
The development of a financial investment strategy is really important, especially for larger companies. This is usually about a lot of money and a lot of investment. Collateral can be obtained by dispersing assets. With the help of successful risk management, investment volumes can be determined rationally and risks can be minimized.
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