Final answer:
Investments are classified as current assets when they are expected to be converted to cash or cover liabilities within one year or the operating cycle. Financial instruments like stocks can be current assets if they are for near-term sale, in contrast to long-term tangible assets.
Step-by-step explanation:
Investments should be classified as current assets if they are expected to be converted into cash or used to pay current liabilities within one year or the normal operating cycle of the business, whichever is longer. This criterion aligns with the liquidity measurement of an asset, which reflects how quickly and easily an asset can be converted into cash. Investment strategies in financial assets and tangible assets like collectibles consider several important factors, such as rate of return, risk, and liquidity.
Certain financial instruments, such as stocks or short-term marketable securities, may be classified as current assets if they have a readily determinable fair value and are intended for sale in the near term. In contrast, long-term investments like purchasing machinery for production or buying a property for long-term use are not considered current assets because they are not expected to be converted into cash within the one-year timeframe.