Question #59
Reading: Reading 8 Intercorporate Investments
PDF File: Reading 8 Intercorporate Investments.pdf
Page: 25
Status: Unattempted
Correct Answer: A
Question
Under IFRS, where an investor owns a significant number (39%) of the voting shares of an investee but has no involvement in policy making and no Board of Directors' representation, which of the following investment classifications is most appropriate to characterize the situation?
Answer Choices:
A. Investment in financial assets
B. Significant influence
C. Investment in associates
Explanation
Investment in financial assets is the correct classification here because there is no
significant influence (i.e. no involvement in policy marking, no Board of Directors'
representation). Although the ownership interest level is significant at 39% (it is between
20% and 50%), the lack of control classifies the investment as an investment in financial
assets.
Significant influence is not in investment classification per se. It is a measure of relative
degree of influence.