Ifthesecuritiesorassetsownedinanotherfirmrepresentless
than 20 percent of the overall ownership of that firm, an
investmentistreatedasaminoritypassiveinvestment.These
investmentshaveanacquisitionvalue,whichrepresentswhat
thefirmoriginallypaidforthesecurities,andoftenamarket
value. Accounting principles require that these assets be
subcategorized into one of three groups—investments that
willbe heldto maturity,investmentsthat areavailable for
sale,andtradinginvestments.Thevaluationprinciplesvary
for each.
1.Forinvestmentsthatwillbeheldtomaturity,thevaluation
isathistoricalcostorbookvalue,andinterestordividends
from this investment are shown in the income statement.
2.Forinvestmentsthatareavailableforsale,thevaluationis
atmarketvalue,buttheunrealizedgainsorlossesareshown
as part of the equity in the balancesheet and not in the
income statement.Thus, unrealized lossesreducethe book
valueoftheequityinthefirmandunrealizedgainsincrease
the book value of equity.
3.Fortradinginvestments, thevaluationisatmarket value
andtheunrealizedgainsandlossesareshownintheincome
statement.
Ingeneral,firmshavetoreportonlythedividendsthatthey
receivefrom minority passive investments in their income
statements,thoughtheyareallowedanelementofdiscretion
inthewaytheyclassifyinvestmentsand,subsequently,inthe
waytheyvaluetheseassets.This classificationensuresthat
firmssuchas investmentbanks,whoseassetsareprimarily
securitiesheldinotherfirmsforpurposesoftrading,revalue