How Investment Portfolio Accounting Works in Quebec

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How Investment Portfolio Accounting Works in Quebec

Portfolio investments are investments in institutions that are not covered by a government evaluation agency. These investments generally include shares or debt securities of the issuer.

When a portfolio investment is permanently impaired, its carrying value must be reduced to account for the loss. The reduction must be reflected in the income statement. For an item to be classified as a financial instrument measured at fair value, the reversal of any net revaluation must be reported in the income statement of the revaluation.

How it works in Quebec

Quebec businesses make investments for all kinds of reasons. When there is a monetary surplus, the money is invested in revenue-generating financial vehicles until the surplus is used for internal purposes. As a general rule, the company places these surpluses in term deposits, treasury bills, bonds, shares, etc. If it is planned to keep these investments for more than one year, the investment must be recognized as a long-term investment in the long-term assets of the balance sheet. In general, these investments are recorded at the purchase price.

It is also possible that some investments are strategic in nature and that the enterprise wants to invest in another enterprise which could bring to the enterprise interesting economic advantages through integration and diversification revenue growth, economies of scale, etc.

This is called a share buyback, a voting share and a benefit-sharing share. In doing so, it seeks not only to maximize the return on investment, but is in fact a means of influencing competition, a means of benefiting from advantages that it would not otherwise have to maintain its growth and assert its position on a global scale.

Types of investments

We will discover how all existing investments can be divided into three categories. This classification will be useful when planning new investments or when purchasing existing shares. Such a division is in fact only the first stage of the investment decision, since it is then necessary to select the specific securities that will be the subject of the investment. However, this activity helps to determine the quality level of the investment portfolio and its importance for security against speculative costs and vice versa. It is therefore important to bear in mind the main characteristics of these three types of investment.

Guaranteed investments

Guaranteed investments are special investments that guarantee the repayment of principal and the payment of income. The principal repayment guarantee is generally backed by a legal commitment on the part of the issuer of the investment. For example, it could be a mortgage guarantee where the borrower designates certain assets, usually fixed assets, that the lender can seize in the event of a default or failure to calculate expected income. The types of investments that best illustrate guaranteed investments are:

  • government bonds, that is, debt securities issued by three levels of government and Crown corporations ;
  • large corporate bonds in good financial health;
  • mortgages.

It should be stressed, however, that the quality of an investment can never be determined strictly on the basis of its appearance, but must involve a large number of factors. To illustrate this point, let us recall the fact that a bond of a property about to collapse must be treated as a speculative investment, while a debtor, that is, a debt that is not issued by a utility company that satisfies our definition of a guaranteed investment.

Productive or efficient investments

Valued at the cost of living, this type of investment first allows the investor to derive income from the investment, hence the name of efficient or productive investment. Investment income is an amount that an investor receives periodically, usually at least once a year, as compensation for the capital he has invested. In addition to being productive, investment in this category offers a form of protection in terms of maintaining the purchasing power of the capital invested. Indeed, the market value of this type of investment is likely to increase, which is often true in the long term. In times of high inflation, it has a higher growth rate because its value is itself subject to inflation. Some of the best examples of cost-of-living investments include:

  • revenue buildings ;
  • shares of successful companies that pay periodic dividends;
  • investment funds focused on income equities

Speculative investments

These investments are investments that, for various reasons, offer the possibility of substantial returns in the short term; otherwise, they represent a significant risk of loss, or performance, management, or several of these problems at once.

By speculating, the prudent investor accepts a higher level of risk in exchange for the possibility of exceptional returns. In doing so, it plays an important role in the natural selection mechanism that allows companies of the future to emerge. It must also be recognized that speculation attracts unprepared individuals who hope to make substantial profits in a short period of time. It should also be mentioned that speculative securities can be redeemed, in a global portfolio strategy, to reduce the overall risk of the portfolio that includes a wide variety of investments. In addition, some markets, such as the options market, may be considered speculative stock markets. These types of investments include:

  • common shares purchased with short-term potential;
  • Growth equity mutual funds
  • speculative land;
  • precious metals;
  • optional, etc.