Page 114 - Accountancy_F5
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Characteristics of financial assets        (c)  Financial assets are fungible: that is,
           There are at least three main characteristics   they can easily be changed into another
           that describe financial assets, as explained   form and substituted for other assets.
           below:                                         Thus, a bond or a share can quickly
           (a)  One of the basic characteristics of       be converted into any other asset the
          FOR ONLINE READING ONLY
                financial assets is that they are promises   holder desires.
                for future returns to the holder. If you
                buy a share from a certain company,  Types and importance of
                       LANGUAGE EDITING
                it implies that you own part of that  financial assets investment
                company and you are promised to       Financial assets, as identified earlier
 LANGUAGE EDITING
                receive a certain return in a form of   in the chapter, are subdivided into two
                a share of profit and capital growth,   main groups, which are variable income
                respectively known as dividends
                and capital gain. Similarly, buying a   bearing  investments  and  fixed  income
                bond issued by the government or by   bearing investments. The two categories
                a corporation, you become a creditor to   are discussed in the following subsections,
                the government or to that corporation.   followed by elaboration of importance of
                Holding that bond promises you to     financial assets investment.
                get returns in a form of fixed interest
                income over a certain period.         Variable income-bearing
                                                      investment
           (b)  Financial assets serve as store of value
                (purchasing power). Their value rests   Variable income-bearing investments are
                on faith that the issuer will honour their   those in which the income to be received
                contractual promise to pay. Financial   varies from one period to another. The
                assets do not physically depreciate in   most popular variable income bearing
                the same way as physical goods wear  investment is the common stock, which is
                out. This is because their physical  also known as “ordinary share”. Common
                condition is not relevant in determining  stock is an investment that gives an investor
                their market value (price). The value  (shareholder) a right to own a part of the
                of financial assets can be affected by   firm’s share capital. Such ownership gives
                demand and supply, company related    a right to an investor to fully participate
                factors, interest rates, politics, current   in deliberations that affect the success of
                events, natural calamities, exchange   the investment firm. The following are the
                rates, etc. For example, a share      benefits accrued to an investor of ordinary
                certificate not more or less valuable   shares:
                because of the quality of paper used
                to print it.



            Student’s Book Form Five
                                                   101




                                                                                            23/06/2024   17:35
     ACCOUNTANCY_DUMMY_23 JUNE.indd   101
     ACCOUNTANCY_DUMMY_23 JUNE.indd   101                                                   23/06/2024   17:35
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