Ch 12 Vocabulary Flashcards
(19 cards)
Amortized cost model
A method of valuing debt investments that are held to earn cash flows with specified payment dates in a contract in which the carrying value is adjusted only to the extent that discounts and premiums are amortized and not for the effect of changes in fair value. p 615
Associate
An investee that is significantly influenced by an investor. p 619
Consolidated financial statements
Financial statements that present the assets and liabilities controlled by the parent company and the total profitability of the combined companies ( the parent company and the subsidiary companies). p 620
Cost model
(also known as the cost method) An accounting model in which an equity investment is recorded at cost because a fair value for the investment cannot be readily determined. This model is also a choice allowed under ASPE for investments in associates. Investment revenue is recognized only when cash dividends are earned. This model should not be confused with the cost model that is used when accounting for property, plant, and equipment in chapter 9. p 616
Debt investments
Investments in money-market instruments, bonds, commercial paper, or similar items. p 612
Equity investments
Investments in the share capital (common and/or preferred shares) of other corporations. p 612
Equity method
An accounting method in which the investment in common shares is initially recorded at cost. The investment account is then adjusted (increased for the investor’s share of the investee’s profit and decreased for dividends received) to show the investor’s equity in the investee. p 620
Fair value through profit or loss model
A valuation method that reports non-strategic debt equity investments that are held for trading at their fair values,
Fair value through other comprehensive income (OCI) model
A fair value model for equity investments that can be used only with an election under IFRS (not used under ASPE). It allows investors to record realized and unrealized gains and losses in other comprehensive income rather than in profit. p 615
Investee
The corporation that issues (sells) the debt or equity securities. p 619
Investor
The corporation that buys (owns) the debt or equity securities. p 619
Non-strategic investment
A debt or equity investment that is purchased mainly to generate investment income. p 612
Parent company
A company that controls (usually owns more than 50% of) the common shares of another company. p 620
Realized gain or loss
The difference between fair value and cost (carrying amount) when an investment is actually sold. p 615
Significant influence
An investor’s ability to influence decisions made by an investee, which is assumed to exist when more than 20% but less than 50% of an investee’s shares are owned. p 619
Statement of comprehensive income
A financial statement that presents the profit (loss) and other comprehensive income (loss) for a specific period of time. Other comprehensive income items, such as realized and unrealized gains and losses from investments accounted for using the fair value through OCI model, are not reported on the income statement because they are not considered critical to the evaluation of management’s performance, but are included in comprehensive income. p 625
Strategic investment
An equity investment that is purchased to influence or control another company. p 612
Subsidiary company
A company whose common shares are controlled (usually more than 50% of the common shares are owned) by another company. p 620
Unrealized gain or loss
The difference between the fair value and cost (carrying amount) of an investment still held (owned) by the investor. p 615
