Intangible Assets and Investments

Question 1

What is an Investment?

Answer 1

A monetary asset purchased with the idea that the asset will provide income in the future or will be sold for a profit.

Question 2

Why do companies make investments?

Answer 2

To tranfser excess cash into investments to produce higher income

Mmutal funds and pension funds set up to produce income from investments

Investment for strategic reasons, for example,, investments in competitors or suppliers.

Question 3

What are Short-term investments?

Answer 3

Cash equivalents 
(Readily converible into known amounts of cash, maturing within 3 months)

Other short-term investments such as marketable securtiies, bonds, treasury bills etc, maturing in 3-12months.

Question 4

Where are short-term investments reported in the statemnet of financial position?

Answer 4

Current Assets

Question 5

What are Long-Term investments?

Answer 5

Long term investments are defined as those that are not readily convertible to cash or intended to be converted in the short term.

Question 6

What are examples of Long-term investments?

Answer 6

Funds earmarked for special purpose

Land or other assets not used in teh company’s operations

Debt securities and Equity Securities

Question 7

Where are long term investments reported in the statement of finacnial position?

Answer 7

Non-Current Assets.

Question 8

What are debt securities for sellers?

Answer 8

This is money borrowed that must be repaid - there are normally three elements: a fixed principal amount, maturity data and specific interest rate.

Question 9

What are debt securities for buyers?

Answer 9

Securities where the investment in these finanical insturments is an asset from which future economic benefits will flow.

Question 10

What are examples of debt seucrities?

Answer 10

Treasury bills, bonds, commercial paper.

Question 11

What are equity securities?

Answer 11

Investments in the voting shares of other firms.

Question 12

What are the three main types of equity investments?

Answer 12

Subsidiary- Investor exercises control either through > 50% shareholding or via agreement / management contract conferring power.

Associate- Investor has significant infleunce from 20-50% shares.

Trade Investments - no influence or control with less than 20% of voting shares.