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Investments in Stocks

What is meant by investing in stocks?

A company has excess funds because of his efforts have “boomimg” or capable of achieving its target goals. Financial manager as a person who has accountability in managing traffic in company funds (cash flow) must be able to optimize the use of funds. It means not to have idle funds. Because if not then the company will lose a lot. Companies will lose many opportunities and profitable business opportunities. There are several ways to use excess funds to earn a profit as well, one of them through investments in stocks.

Investments in stocks, or so-called investment was the purchase of shares or participation or other companies share ownership in order to obtain benefits and more. Benefits derived from the dividends distributed in accordance with the capital or part of its shares. Other benefits can include the management control rights over corporate policy is purchased. Acquired management control if the aggregate shareholding majority. Company stock investing is the parent company, while companies that issue stock company called the child. Relationships both so-called affiliated companies.

Companies that invest in stocks have a purpose or a number of reasons, among others; to spread risk, strengthening market networks, strengthen distribution, maintaining supply raw bhan if the company that purchased the raw material suppliers and strengthen management.

Are also included in the acquisition of stock investments?

Recent acquisition of sticking with the term rise in the business dynamics of our country and the deregulation package of digulirkannya capital markets. The term itself actually an acquisition of the old concept. The acquisition has long practiced mainly in industrial countries forward. Similarly, books on acquisition of long-standing one.

Simply defined as a purchase acquisition or control or capture (take over) by large firms (parent company) of the target company (subsidiary company). In practice, after the acquisition process is often carried merger or consolidation process into a new company law allows the emergence of new entities (new legal entity), for example, Lippo Bank. But there is also a legal entity retains the old, for example Bimoli still use the old entity legally purchased even though the Salim Group.

Companies that make acquisitions have several objectives, among others; to seek revenue from the distribution of dividends, strengthening market network, strengthen distribution, spread risks, achieve economies of scale and diversification. This activity can be done directly with the target companies / targets or can be through the capital markets. Companies that make acquisitions in principle is to make investments. Therefore, the acquisition is for long periods and in the balance sheet headings grouped into stock investments.

How do I record the stock investments in the balance sheet and please give examples!

There are two methods that can be used to record stock investments, namely 1) the acquisition cost method, and 2) the equity method

The use of direct methods depending on the amount of stock ownership and voting rights to influence company policy children. If the company is able to hold or control over management control of the company of children, then used the equity method. Conversely, if the company is only able to acquire the minority interest acquisition cost used.

1. Equity method

This method is used if a majority shareholding. In the equity method are recorded at cost or investment account for the stock price plus the costs that accompany such a commission, provision and others. Company profits or losses are treated as children or the loss of corporate profits proportional to the number of shares owned. Dividend announcements from the company treated the child as a deduction of investment shares and discredit of the dividend that will be accepted. Dividend from the company treated the child as a reduction of investment.

2. Cost method

This method is used if the minority shareholdings. In recording the acquisition method of investments for the acquisition of the stock price plus the amount of provision costs, commissions and other costs. The amount of investment will not change unless there is new investment. Dividends are treated as corporate income, just after distributed as dividends. Net profit after corporate tax is not the child is recognized as income. Corporate dividend announcement child will be recorded as income by debiting accounts receivable and crediting of dividends dividend income. Investments in shares are recorded at cost plus other expenses by debiting and crediting the shares of investment cash accounts.

Tags: acquisition, company, investments, stocks, suppliers

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