ADMN 2021H Chapter Notes - Chapter 12: Commercial Paper, Equity Method, Financial Statement
4 Mar 2017
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Equity investments investments in the share capital (common and/or preferred shares) of other corporations: may or may not earn revenue, no obligation to return principal. Non-strategic investments: company may have excess cash that it does not immediately need. Reasons for purchasing non-strategic investments: to earn capital gains trading investments. Further classified as short-term investments or long-term investments: depends on liquidity of investment and how long management wishes to hold the investment. Strategic investments: only common shareholders have voting rights and the ability to. Only equity securities can be considered a strategic investment influence or control the company"s major decisions. At acquisition, debt and equity investments are recorded at their purchase cost. After acquisition, there are four major models that can be used for valuing non-strategic investments: (pg. 616: fair value through profit or loss model. A valuation method that reports non-strategic debt or equity investments that are held for trading at their fair values.
