As I explored the FASB Codification over 320-10-25, it highlighted various aspects of debt securities and how they are broken down into several categories, including trading securities. These are those financial instruments that are available for trade and are held until their maturity date. In the Codification 320-10-25-1, it explained how trading securities is essential and flexible in financing business activities. They are purchased by a company to realize profits in the short-run. It also highlights how industry trends and other forms of impending news or announcements influence trading securities' sales or purchases. Financial reporting gives that trading securities are placed in the balance sheet of a company at their fair values (Cantrell, 2019). The level of investment on securities is recorded on Codification 323-10-15-10. It describes how owning 20% or more of the voting stock of investee results in a comparatively lower influence in the company's operations and financial policies. This implies that if an investor holds more than 20% investment, it may be a downside since there is a need to ask other shareholders about their views on the financial and operational policies that are yet to be implemented. Codification 320-10-20 explains a standstill agreement signed by an investee and the investor, which requires the investor to have limited shareholding on the investee. This is almost similar to a custody agreement where the person occupying an apartment has limited decisions to make, especially those that are not listed in the agreement form. The standstill agreement has specific instructions that both parties should follow. It is also an important tool as it gives regulations on how to the company can purchase, dispose of, or to vote stock of another target company. Besides, it helps to prevent any form of hostile takeover if the deals cannot be negotiated in a friendly manner between the investor and the investee.
References
Cantrell, B. W. (2019). Generic Bank: Accounting for Debt Securities Sales and Impairments. Issues in Accounting Education , 34 (4), 15-29.
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