Accounting monograph on stock exchange transactions

Short-term financial investments

are to be booked in accounting in the accounts of the group 508 “Short-term investments”.

Short-term financial investments include the following:
– shares held at affiliates and
– other short-term investments representing the issued and redeemed bonds, acquired bonds and other stocks and securities purchased with the purpose of obtaining short-term profit.

Evaluation of short-term investments 
Initial evaluation. Upon their inflow, short-term investments are to be valued to their acquisition cost, i.e. their purchase price or the value established according to contracts.

In case of short-term securities that are quoted on a regulated market, the acquisition cost does not include the trading costs that are directly attributable to their acquisition, as such costs are booked in their adequate expense accounts.

Evaluation as at balance sheet date. Short-term financial investments (shares and other financial investments) that are admitted for trading on a regulated market ought to be valued to the quotation value from the last day of their trading and those that are not traded are to be valued to their historical cost, less any possible adjustments for impairment.

All possible plus or minus differences resulting from their evaluation shall be booked as financial income or loss, in the accounts 768 or 668, as the case may be.

Outflow evaluation. Upon the outflow of short-term investments, the provisions of point 131 of the Accounting regulations apply according to the 4th Directive of the European Economic Communities, as approved by the Order of the Ministry of Public Finance no. 1802/2014, respectively one of the following methods apply:
– FIFO method: first in-first out;
– LIFO method: last in – first out;
– WAC method: weighted average cost method.

Accounting posting of operations 
Stocks and securities are to be acquired by the mediation of a broker company.
The client transfers the broker an amount of money, as agreed, which the broker invests according to the instructions of the client or on their own initiative.

Periodically, the investment company sends the investor a statement of account in which the invested amounts are presented, as well as the stocks and securities in which investments have been made, the sales and acquisitions made and the fee of the investment company.

1. When an order for the acquisition of stocks and securities is placed to a broker and purchases of stocks and securities are to be booked as follows:
508 “Other short-term financial investments” = 5092 “Amounts payable for other short-term

financial investments”

  1. When amounts of money have already been transferred to the account of the broker, this operation is to be booked as follows:
    5092 “Amounts payable for other short-term financial investments” = 5121 “Cash at bank in RON”3.The sale of shares resulting in gains is to be booked as follows:
    461 “Sundry debtors”   =   %

508     “Other short-term financial investments”
7642    “Gains on disposal of short-term financial investments”

4. The sale of shares resulting in loss is to be booked as follows:
%                                                                                      =     5081″Other short-term financial investments”
461″Sundry debtors”
6642 “Losses on disposal of short-term financial investments”

The outgoing value of stocks and securities shall be determined by one of the methods FIFO, LIFO or the weighted average cost method, which is similar to the procedure applied for the outflow of stocks of goods.

5. Fees charged by the broker shall be withheld by the broker and this shall be booked as follows:

622 “Commissions and fees” = 461 “Sundry debtors”

6. Amounts collected from the broker’s account, representing the net gain from sales (amounts collected – fees charged) or upon the liquidation of the account are to be booked as follows:

5121 “Cash at bank in RON”    =    461″Sundry debtors”

7. The evaluation of stocks and securities at the balance sheet date shall be made based on the exchange rate of the last trading day.
– The positive difference resulting from evaluation (the trading value of the stocks is higher than the asset value determined by one of the methods FIFO, LIFO or weighted average cost) is to be booked as follows:
668 “Other financial expenses”        =    508 “Other short-term financial investments”
– The positive difference resulting from evaluation (the trading value of the stocks is higher than the asset value determined by one of the methods FIFO, LIFO or weighted average cost) is to be booked as follows:
508 “Other short-term financial investments”        =    768 “Other financial revenues”

Tax treatment

The provisions of the Law 571/2003 (Fiscal Code), complete with subsequent modifications and completions are to be considered upon determining taxable corporate income.

Art. 21 stipulates that before determining taxable corporate income, only those expenses that are incurred for the purpose of obtaining taxable income are to be considered deductible. This includes such expenses that are regulated by currently valid normative deeds.

Both revenues are obtained from the transfer of stocks and securities, on the one hand and those obtained as a result of plus differences from evaluation, on the other hand, are taxable.

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