Chapter 9: Investments

This set covers vocabulary and core concepts from Chapter 9 on Investments, including measurement models (Cost, Amortized Cost, FV-NI, FV-OCI), impairment approaches under IFRS and ASPE, and strategic investment classifications like Significant Influence and Control.

Debt Instruments

Investments in debt securities whose prices are normally quoted in an active market, such as government and corporate bonds, convertible debt, and commercial paper; they represent a creditor relationship with the issuing company.

Equity Instruments

Investments representing ownership interests in a company through common, preferred, or other shares; they do not have a maturity date and pay dividends instead of interest.

Cost/Amortized Cost Model

An accounting model where investments are initially measured at cost (fair value plus transaction costs) and, at each reporting date, measured at cost or amortized cost.

Fair Value through Net Income (FV-NI)

Also referred to as fair value through profit or loss (FVTPL) in IFRS; a model where investments are recorded at fair value, transaction costs are expensed, and unrealized gains/losses are recognized in net income.

Fair Value through Other Comprehensive Income (FV-OCI)

A model where investments are recognized at fair value plus transaction costs, and unrealized holding gains or losses are recognized in other comprehensive income (OCI).

Recycling

The process where unrealized holding gains or losses previously recognized in OCI are transferred to net income upon the disposal of debt instruments.

Held to Maturity Investments

A term sometimes used to describe investments accounted for under the amortized cost model, where the difference between acquisition cost and face value is amortized over the period to maturity.

Amortized Cost

The amount recognized at acquisition minus principal repayments, plus or minus the cumulative amortization of any discount or premium.

Effective Interest Method

A method of amortization that recognizes a constant rate of interest each period; it is required under IFRS for investments accounted for at amortized cost.

Straight-line Method

A method of amortization that recognizes a constant amount of interest income each period; it is allowed under ASPE.

Incurred Loss Impairment Model

The impairment model used under ASPE where an impairment test is carried out only if there is evidence of trigger events, such as significant financial difficulties or default on payments.

Expected Loss Impairment Model

The impairment model used under IFRS where estimates of future cash flows are carried out on a continuous basis without requiring a triggering event.

Significant Influence

A relationship where an investor has the power to participate in financial and operating policy decisions but not control; typically indicated by ownership of $20\%$ to $50\%$ of voting shares.

Equity Method

An accounting method for associates where the investment is initially recorded at cost and subsequently adjusted for the investor's share of the investee's income, losses, and dividends.

Associate

An entity over which the investor has significant influence but not control, often referred under ASPE as a significant influence investment.

Control

The power to direct the activities of another entity to generate returns; generally acquired by purchasing more than $50\%$ of voting shares.

Subsidiary

A corporation that is controlled by another corporation, known as the parent company.

Consolidated Financial Statements

Financial statements that eliminate the investment account and report a parent and its subsidiaries as a single business entity.

Noncontrolling Interest

Also known as minority interest, this account arises in consolidated financial statements when the parent company owns less than $100\%$ of the subsidiary.