Should Investments be accounted "AT COST" or "Market Value" ??

Though #CABO, #RENU & #COCO are classified in different sectors in CSE, I noticed that they holding large Investment portfolio (earns more from them), but most of the cases accounted at COST in financial statements, which do not reflect their actual valuation. At the same time I noticed some others like #NAVF, #CINV and #OSEA are continuously accounting at market value of their assets (equity/property). This cause comparability issue!! Isn't there any ACCOUNTING STANDARDS in this area??

Can any one do an analysis (i.e. #CABO, #RENU & #COCO) for us to the impact?? Experts, appreciate your contribution.

@ Kapilaweer,

http://forum.srilankaequity.com/t2539-coco-potential

We had a down under discussion on Coco Lanka Plc.Pls refer the above link for more information.


Gud Luck

Very much appreciate your prompt reply and nice analysis done by you on #COCO. I must say It was a excellent discussion.

By contract, I was keen to see the impact of accounting "at COST" & "at Market Value", and comparability issue associated with. Also, no commonly accepted "NORM" or "STANDARD" seems to be adopted by players as I given few examples. Not only equity investment, also investment properties are carrying his disparity.

Equity:
In case of #COCO, "Renuka Agri Foods #RAL" is the only listed investment (correct me if it is not) and may in a difficulty value other investments at market value. But, in case of #RENU & #CABO, most of them are listed equity and readily available a market value.
E.g.
#CABO showing only 373M instead of market value of 864M (See Note 12: Annual Report 2009/10)
#NAVF showed 623M of Market Value of the Listed equity (See Note 8: Annual Report 2009/10)
#CINV showed 2,092M of market value instead the cost of 1,137M (See Note 9: Annual Report 2009/10)

Property:
#CABO showing only 34.6M instead of estimated market value of 252M (See NOTE 11: Annual Report 2009/10 )
#OSEA showed value of 15.7B after adjusting 0.43B as Net Gain from Fair Value Adjustment (See NOTE 5: Annual Report 2010)

(See #CABO Annual Report - http://www.cse.lk/cmt/upload_report_file/615_1283168949537.pdf )
(See #OSEA Annual Report - http://www.cse.lk/cmt/upload_report_file/628_1302264235.pdf )
(See #NAVF Annual Report -http://www.cse.lk/cmt/upload_report_file/882_1277722807999.pdf)
(See #CINV Annual Report - http://www.cse.lk/cmt/upload_report_file/608_1274348283873.pdf)

Further, my concern was why regulators (i.e. ICASL, CSE, SEC) do not recommending a best practice which ensure "reliability and usefulness" of the financial statements, specially in case of Listed Companies.

I just share my observation (may be my way of thinking is totally wrong), appreciated all of your comments/views.

Good Luck!

Kapilaweer wrote:
Very much appreciate your prompt reply and nice analysis done by you on #COCO. I must say It was a excellent discussion.

By contract, I was keen to see the impact of accounting "at COST" & "at Market Value", and comparability issue associated with. Also, no commonly accepted "NORM" or "STANDARD" seems to be adopted by players as I given few examples. Not only equity investment, also investment properties are carrying his disparity.

Equity:
In case of #COCO, "Renuka Agri Foods #RAL" is the only listed investment (correct me if it is not) and may in a difficulty value other investments at market value. But, in case of #RENU & #CABO, most of them are listed equity and readily available a market value.
E.g.
#CABO showing only 373M instead of market value of 864M (See Note 12: Annual Report 2009/10)
#NAVF showed 623M of Market Value of the Listed equity (See Note 8: Annual Report 2009/10)
#CINV showed 2,092M of market value instead the cost of 1,137M (See Note 9: Annual Report 2009/10)

Property:
#CABO showing only 34.6M instead of estimated market value of 252M (See NOTE 11: Annual Report 2009/10 )
#OSEA showed value of 15.7B after adjusting 0.43B as Net Gain from Fair Value Adjustment (See NOTE 5: Annual Report 2010)

(See #CABO Annual Report - http://www.cse.lk/cmt/upload_report_file/615_1283168949537.pdf )
(See #OSEA Annual Report - http://www.cse.lk/cmt/upload_report_file/628_1302264235.pdf )
(See #NAVF Annual Report -http://www.cse.lk/cmt/upload_report_file/882_1277722807999.pdf)
(See #CINV Annual Report - http://www.cse.lk/cmt/upload_report_file/608_1274348283873.pdf)

Further, my concern was why regulators (i.e. ICASL, CSE, SEC) do not recommending a best practice which ensure "reliability and usefulness" of the financial statements, specially in case of Listed Companies.

I just share my observation (may be my way of thinking is totally wrong), appreciated all of your comments/views.

Good Luck!

Good observation. Each company right now evaluates their portfolio on a different time basis. Companies like NAVF evaluated every month. Some every 3 month . Companies like RENU, CABO will re-evalutate their portfolios every 12 month period.

It seems like they do not have to adhere to a specific time period standard to re-evaluted their portfolios ( except every 12months?). One thing to note it that these companies belong to different sectors though holding large portfolios. Example RENU is under hotel and CABO under Land and property. CINV is under investment trust. COCO food and beverages. Not sure whether there is an act that dictates declared Investment trusts need to re-evaluate every 1 month to 3 months while others optionally can every 12 months. We will need to check on this .

@slstock - thanks a lot.

My observation is #RENU #CABO continuously account the value of portfolio AT COST (though they disclose both Cost & Market Value in NOTES - Annual Accounts), and never take Market Value in to Balane Sheet or the gain in P/L), while #NAVF & #CINV always account AT MARKET VALUE. The disparity can be seen irrespective of frequency i.e. Monthly(1), Quartaly(3), Anuually(12). However, the Sectorial categorization might be the fact in case of equity portfolio valuation.

But in case of investment property, both #OSEA & #CABO are catogorized under the same at CSE, but as I showm earlier, #OSEA each time account at "Market based - Fair Value" after adjusting to gain/fail of fair value, but #CABO continuously account "At Cost after Depreciation", and just seperately disclose the estimated market value. Therefore, it seems that the category is also not the case.

Appriciate more comments/views please.

(decleration: I'm not promoting any individual stock, but I have all stocks referred above, except #CINV, in small numbers)

Notes to the financial statements should show the both cost & the market value in financial statements as a disclosure requirements. This facilitates the investor to measure its impact to bottom line at both prices.

Some listed entities take into consideration the gain/loss into statement of account in quarterly accounts during the accounting period & some takes the impact at the end of the financial year.

It is noteworthy to know whether the CSE uploads the financial statements to its website before the audit is in compliance with financial reporting standards in Sri lanka before uploading.

Also, if the core business in not the "investment in listed companies", such gain or loss are treated as other income or loss. I noticed many look into the bottom line with huge gains shown above the statment of income.

What happens if those investments values are dropped in the next quarter? Do investors look into provisions made for such unforseeable events? How Sri lanka accounting standards are protecting the investors?

An accountant/auditor well versed with Sri Lanka accounting standards is welcome to educate this forum members.

Wish you all happy, prosperous & peaceful new year.

@worthiness -- highly appriciate your ideas!

As our friend already invited, Can some of our members who familiar with Accounting/Auditing Standard comment on this "reliability and usefulness" issue of the financial statements?

Re-emphaising: In my examples (i.e. #CABO and #RENU) they have not taken these sizable gains neither to "Income Statement" nor "Balance Sheets", even annually, apart from just disclosure in notes.
As all know, those disclosure does not take in to consideration, when it calculating INVESTMENT RATIOS, which use in investment decisions and compare among stocks.
I guess the impact of the issue does not limited to examples given above, may be many others.

I strongly believe, this type of discussion can be an "eye opener" not only traders/investers but also regulators like ICASL/SLAASMB and SEC/CSE to recomend best practices, which enhance "reliability and usefulness" of the financial statements.


Appriciate more comments/views.

Kapilaweer wrote:@slstock - thanks a lot.

My observation is #RENU #CABO continuously account the value of portfolio AT COST (though they disclose both Cost & Market Value in NOTES - Annual Accounts), and never take Market Value in to Balane Sheet or the gain in P/L), while #NAVF & #CINV always account AT MARKET VALUE. The disparity can be seen irrespective of frequency i.e. Monthly(1), Quartaly(3), Anuually(12). However, the Sectorial categorization might be the fact in case of equity portfolio valuation.

But in case of investment property, both #OSEA & #CABO are catogorized under the same at CSE, but as I showm earlier, #OSEA each time account at "Market based - Fair Value" after adjusting to gain/fail of fair value, but #CABO continuously account "At Cost after Depreciation", and just seperately disclose the estimated market value. Therefore, it seems that the category is also not the case.

Appriciate more comments/views please.

(decleration: I'm not promoting any individual stock, but I have all stocks referred above, except #CINV, in small numbers)

I did not look at OSEA situation but yes you are correct RENU and CABO state the market values vs cost as required but then they do not seems to account the market value in the balance sheet as an assert.
This certainly show there are discrepancies in the accounting process and as investors we need to look out for these before blindly making a decision basis on final numbers.

Please refer the discussion so far;

The discussion was on whether investments in "equity" and "property" should be accounted AT COST or AT MARKET VALUE. It was observed that different companies are adopting both, without having consistency across the board. Few examples are already shown, and there may be many other affected stocks.

Some argued that it caused serious Comparability issue hinder "reliability and usefulness" of the financial statements" which might deteriorate investment decisions. The discussion was stuck without having expert view on whether any accounting/auditing standards (SLAS/IAS) on the same prescribing the bast practice.

Further views/discussions are welcome