According FRS 139, investment in shares can be classified as either:
1. Held for trading securities (“HFT”); or
2. Available for sale financial assets (“AFS”).
Investments HFT are acquired principally for the purposes of selling in the near term or to take advantage of fluctuation in price. They are short term investments in shares / bonds.
If the share investment is not HFT, then it is AFS. Example of AFS investments is long term investments in shares.
Why is it important to determine the classification of the investments?
Both HFT and AFS investments are measured at fair value (or current market value).
But if it is HFT, the changes in market value will be recognised in P&L;
whereas for AFS investments, the changes in market value will NOT be recognised in P&L, it goes to Equity in Balance Sheet.
See, this is the difference – one impacts P&L and the other will not; but both will have the same impact on the Net Assets.
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