Question

In your own words discuss in detail the various non influential as well as influential investments that company may have on their financial statements. Also compare and contrast how they are treated/recorded on the companies financial statements..

Answer 1

1. Influential investment refers to that investment where a person/company purchases at least twenty to a maximum of fifty percent of the ownership in investee company.

In financial reports, initially these investments are recorded at cost as investment account. Subsequently ownership portion of investee company's earnings is added or reduced in case of losses to this investment by debiting the investment account and crediting the income. Dividends are charged to the investment by debiting cash and crediting investment account. In case the ownership control exceeds 50% the significant influence cease to exist and the company have to include consolidated financial statements in its annual reporting.

2. Non-influential investments are the investments purchased with a sole purpose of making profits by receiving periodic income in form of dividend or interest and gains from selling them in the future. They may be debt or equity held for trading, debt held to maturity, debt or equity held for sale. There is no intention of seeking control over the investee here.

Available for sale and held for trading investments are recorded at fair value. Held for maturity investments are recorded at cost less amortisation over period.