Long Term Investment with a Maturity Period of Less than Six Months

Long term investments typically refer to assets held by a company for a period exceeding one year. However, there are instances where a company may have investments with a maturity period of less than six months that can be considered as long term investments. These investments are usually classified as non-current assets on the balance sheet.

Balance Sheet Presentation

On the balance sheet, long term investments with a maturity period of less than six months will be presented under the non-current assets section. This section includes assets that are expected to be held for a period exceeding one year or the operating cycle of the business, whichever is longer. Such investments are reported at their fair value on the balance sheet.

Classification as Non-Current Assets

Long term investments with a maturity period of less than six months are classified as non-current assets for several reasons:

1. Investment Horizon: Despite having a maturity period of less than six months, these investments are intended to be held by the company for a longer period, typically exceeding one year.

2. Strategic Purpose: Companies may acquire these investments for strategic purposes, such as capital appreciation or to generate interest income. These purposes align with the long-term goals of the business.

3. Non-Operating Nature: These investments are not directly related to the company's core operations and are not expected to be converted into cash or used in operations within the next operating cycle.

Example and Presentation on Balance Sheet

Suppose a company invests $100,000 in a fixed deposit with a maturity period of four months. Although the investment matures within a short period, it is classified as a long term investment due to the company's intent to hold it for a longer duration.

On the balance sheet, this investment will be presented as follows:

Non-Current Assets:
- Long Term Investments:
- Fixed Deposit (Matures in Less than Six Months) $100,000

The fair value of the investment, in this case, will be reported at $100,000, representing the original investment amount.

Conclusion

Long term investments with a maturity period of less than six months are classified as non-current assets on the balance sheet. They are reported at their fair value and reflect the company's intent to hold these investments for a period exceeding one year or the operating cycle of the business. It is important for companies to properly classify and disclose these investments to provide transparency to stakeholders and accurately represent the financial position of the company.