Chapter 5: Long-term investments

Question 1

investor

Answer 1

owns the corporation’s bonds or equity (buys)

Question 2

investee

Answer 2

the corporation that issues bonds or equity (sells)

Question 3

financial asset

Answer 3

investor does not play any role in the operations of the investee (passive investments) –> less than 20% ownership. Short-term

Question 4

Investment in associates

Answer 4

20-50% ownership –> investor has the opportunity to influence the operating decisions and policies. Long-term

Question 5

investment in subsidiaries

Answer 5

50% or more –> long-term influence, part of core operations and exercise control –> long-term

Question 6

held for trading

Answer 6

acquired for the purpose of selling in the near future (fair value)

Question 7

available for sale

Answer 7

no immediate intention to sell the shares. the investments has no strategic importance –> done simply because it yields more than putting money on the bank (fair value)

Question 8

held to maturity

Answer 8

bought with the purpose of making profits from it until the maturity date (Amortized cost)

Question 9

premium

Answer 9

price paid for an obligation is higher than face value

Question 10

discount

Answer 10

price paid for an obligation is lower than face value

Question 11

at par

Answer 11

price paid for an obligation is equal to face value

Question 12

non-controlling interest

Answer 12

a subsidiary company’s equity held by shareholders other than the parent company

Question 13

Equity method

Answer 13

Original cost | share of losses

Share of income | share of dividends

Question 14

unrealised gains/losses

Answer 14

income statement or statement of comprehensive income (when available-for-sale)

Question 15

fair value

Answer 15

balance sheet