CHAPTER 14
INTERCORPORATE INVESTMENTS
LEARNING OUTCOMES
After completing this chapter, you will be able to do the following:
- Describe the classification, measurement, and disclosure under International Financial Reporting Standards (IFRS) for (1) investments in financial assets, (2) investments in associates, (3) joint ventures, (4) business combinations, and (5) special purpose and variable interest entities.
- Distinguish between IFRS and U.S. GAAP in the classification, measurement, and disclosure of investments in financial assets, investments in associates, joint ventures, business combinations, and special purpose and variable interest entities.
- Analyze effects on financial statements and ratios of different methods used to account for intercorporate investments.
1. INTRODUCTION
Intercorporate investments can have a significant impact on the investing entity’s financial performance and position. Companies invest in the debt and equity securities of other companies to diversify their asset base, enter new markets, obtain competitive advantages, and achieve additional profitability. Debt securities include commercial paper, corporate and government bonds and notes, redeemable preferred stock, and asset-backed securities. Equity securities include common stock and nonredeemable preferred stock. The percentage of equity ownership a company acquires in an investee depends on the resources available, the ability to acquire the shares, ...
