The accounting treatment of investments involves several key steps to ensure accuracy and consistency in recording and analyzing investments. Here's an overview of this process, along with practical examples.

 1- Classification of Investments

 Classification of investments in Saudi Arabia into short-term and long-term:

• Short-term investments: These are held for less than a year.

  Example: Purchasing 1,000 shares of Company "A" at 10 riyals per share, with the goal of selling them within six months for a profit.

• Long-term investments: These are held for more than a year.

  – Example: Buying a property worth 1,000,000 riyals to be invested over a period of 10 years.

 2- Initial Recognition of Investment

•  Investments are recorded at cost:

Example: If 1,000 shares of Company "B" are purchased at 15 riyals per share, with additional purchase costs of 200 riyals:

  Purchase cost = 1,000 shares × 15 riyals + 200 riyals (purchase costs) = 15,200 riyals.

The investment is recorded in the books as follows:

• Debit: Investments (15,200 riyals)
• Credit: Cash (15,200 riyals)

 3- Valuation of Investments

 Fair market value:

• Example: If the share price rises to 18 riyals per share after a period of time:
• Fair market value = 1,000 shares × 18 riyals = 18,000 riyals.

  Value difference:

• Unrealized gain = 18,000 riyals – 15,200 riyals = 2,800 riyals.
• The value is adjusted in the books as follows:

1.   Debit: Investments (2,800 riyals)
2.   Credit: Unrealized gains (2,800 riyals)

 Acquisition cost:

• Example: If bonds are purchased for 50,000 riyals with an annual return of 5%, the earned return is recognized annually:
• Annual bond return = 50,000 riyals × 5% = 2,500 riyals.
• The return is recorded as revenue:

1. Debit: Cash (2,500 riyals)
2. Credit: Interest income (2,500 riyals)

 4. Settlement and Revenue Recognition

 Dividends and interest:

• Example: If Company "C" announces a dividend of 2 riyals per share, and you own 1,000 shares:
• Dividend = 1,000 shares × 2 riyals = 2,000 riyals.
• The dividends are recorded as follows:

1.   Debit: Cash (2,000 riyals)
2.   Credit: Dividend income (2,000 riyals)

 Market value changes:

• Example: If the share price drops from 18 riyals to 16 riyals per share:
• New market value = 1,000 shares × 16 riyals = 16,000 riyals.
• Value difference:

1. Unrealized loss = 18,000 riyals – 16,000 riyals = 2,000 riyals.

• The value is adjusted in the books as follows:

1. Debit: Unrealized losses (2,000 riyals)
2. Credit: Investments (2,000 riyals)

 5- Derecognition of Investment

 Selling the investment:

• Example: If the shares are sold at 20 riyals per share:
• Sale value = 1,000 shares × 20 riyals = 20,000 riyals.
•   Realized gain:

1.   Gain = 20,000 riyals – 15,200 riyals (original cost) = 4,800 riyals.

•   The sale is recorded as follows:

1.   Debit: Cash (20,000 riyals)
2.   Credit: Investments (15,200 riyals)
3.   Credit: Realized gains (4,800 riyals)

 6- Disclosure

 Financial statement disclosure:

• Example: Details of investments, including fair value and changes in value, must be disclosed in the financial statements.

 Relevant Accounting Standards:

• International Accounting Standard 32 (IAS 32): Financial Instruments: Presentation
• International Accounting Standard 39 (IAS 39): Financial Instruments: Recognition and Measurement
• International Financial Reporting Standard 9 (IFRS 9): Financial Instruments
• International Financial Reporting Standard 13 (IFRS 13): Fair Value Measurement

By following these accounting standards for investment treatment, companies can ensure compliance and transparency in presenting their financial investments in reports.