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Real estate investment analysis not only works to delve into the quality of the asset but also to provide a set of alternatives that can better meet your investment objectives. Hence, you need a well-developed body of techniques which can be used in conjunction with data from the market to enhance your investment decision-making process.
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Short-term Investmentsare 1) liquid (readily convertible to cash) and 2) expected to be converted to cash within one year. Short-term Investments can be further classified as Held-for-trading investments, intended to be sold within one year. Because short-term investments will be sold in the near future at their current market value and the investor owns less than 20% of the investee, the market-value method is used to account for all short-term investments. When acquired, the held-for-trading investments account is debited for their cost (price per share ´ number of shares acquired; commissions and other associated costs are expensed immediately), as follows:
Held-for-Trading Investments XX Cash XX
As dividends are received, the transaction is
Cash XX Dividend Revenue XX
On the balance sheet date, held-for-trading investments are reported at their fair, or market, value. Any gain or loss resulting from the change in fair value is recognized in net income for the period in which it arises, in the “Other gains and losses” section. The gain or loss is also recorded in the Fair-Value Valuation Allowance account, a companion account to the Held-for-Trading Investments account that is used to reflect the changes in fair value.
If the fair value is lower than the current carrying amount, the adjustment is:
Unrealized Loss on Fair-Value Adjustment XX Fair-Value Valuation Allowance XX
If the fair value is higher than the current carrying amount, the adjustment is:
Fair-Value Valuation Allowance XX Unrealized Gain on Fair-Value Adjustment XX |
