54 HASKINS & SELLS July
What Constitutes Marketability?
BA L A N C E sheets frequently show an
item described as marketable securities.
They are usually differentiated from
investment securities on the theory that
they are not only readily saleable but might
be sold without any detriment, in its relations
of stock control or operating affiliations,
to the company which owns them.
Such securities are usually considered to
represent surplus funds which are either not
required or may not be utilized to financial
advantage in the business. They are
temporary investments which usually yield
more than bank deposits, and still may be
converted immediately into current funds,
in the event that such funds are needed.
For this reason the item of marketable
securities usually appears in the balance
sheet immediately after the cash, and in
some instances, as evidence of their availability,
is even combined with call loans.
In so far as these general theories are concerned
all is smooth sailing. It is well that
there should be a theory on which classification
of items of this character is based.
But when the accountant, whose duty it is
to pass judgment on marketability, gets
down to the point of specific securities, the
task of deciding is not so simple. The
question of marketability is quite apart
from valuation, and has to do principally
with the deciding whether or not the securities
are properly included in the group of
current assets. The best evidence of
marketability is that the securities are
listed on an exchange and traded in. Even
inactive securities may be verified as to
their marketability, as may unlisted securities
traded in by brokers where bid and
asked prices may be obtained. But the
instances of supreme difficulty are those
where securities are not listed, no bid or