Inter-Corporate Investments

Concept
• Inter-corporate investment occurs when a
company makes an investment in another
company. It could be through the purchase of
shares of a publicly traded company on Stock
exchange or a privately negotiated deal for a
share of a company that is not publicly traded.
The investment may also involve buying the
debt (bonds) of another company, publicly
traded or otherwise.
 Categories
• Basis of categorization: Ownership %
• Intercorporate investments fall into one of
three categories which affect the accounting
treatment of the investment: minority passive
(less than 20% ownership), minority active
(20%-50% ownership) and controlling
share (over 50%)
 Categorization
Ownership Category Influence
(Guidance) (Decision)

< 20% Financial Insignificant

Asset
20% - 50% Associates Significant

> 50% Combination Control

 Financial Assets-IFRS 9
Right to receive something of value on the basis
of a contract (actual or implied)

Classification Basis: “Intent”

• Held for Trading (shares & bonds)

• Available for Sale (shares & bonds)
• Held to Maturity (Only for bonds)
 Held for Trading
• Intent is short-term ownership i.e. plan to sell
it as soon as price is right (may be next day)
• Current Assets
• Can be either debt (bonds) or equity (shares)
• Reported at Fair value (MV)
• Un-realized gain goes to Income Statement
• Realized gain goes to Income Statement
 AFS
• Available for sale means the intent is to hold it
and earn dividend/interest but can sell it if
desired.
• Realized Gain ----- Income Statement
• Un-realized gain ----- Balance Sheet (OCI)
• Un-realized loss ----- Income Statement
 HTM
• Held till maturity: When the intention of
investor is not to sell till it matures. Only debt
(e.g. bonds) can have maturity…. Shares do
not mature.
 Financial Assets Summary
Category Realized Un-Realized Un-Realized Reporting
Gain/Loss Gain Loss Value

HFT P/L P/L P/L Current Fair

Value

AFS P/L Bal Sheet P/L Current Fair

Value

HTM P/L Not reported Not reported Amortized

Value