Definitions of Terms

Associate

An enterprise over which an investor has significant influence but which is neither a subsidiary nor a joint venture of the investor company.

Available-for-sale financial assets

Those financial assets that are not held for trading or held to maturity, and are not loans and receivables originated by the entity.

Control

The power to obtain the future economic benefits that flow from an asset.

Cost method

A method of accounting for investment whereby the investment is recorded at cost; the income statement reflects income from the investment only to the extent that the investor receives distributions from the investee's accumulated net profits arising after the date of acquisition.

Current investment

An investment that is, by its nature, readily realizable and is intended to be held for not more than one year.

Derecognize

Remove a financial asset or liability, or a portion thereof, from the entity's balance sheet.

Derivative

A financial instrument (1) whose value changes in response to changes in a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or similar variable (which is known as the "underlying"), (2) that requires no initial net investment or little initial net investment relative to other types of contracts that have a similar response to changes in market conditions, and (3) that is settled at a future date.

Differential

The difference between the carrying value of common stock investment and the book value of underlying net assets of the investee; this should be allocated between excess (or deficiency) of fair value over (or under) book value of net assets and goodwill (a negative goodwill) and amortized appropriately against earnings from investee.

Equity method

A method of accounting whereby the investment is initially recorded at cost and subsequently adjusted for the postacquisition change in the investor's share of net assets of the investee. The investor's income statement reflects the investor's share of the investee's results of operations.

Fair value

The amount for which an asset could be exchanged between a knowledgeable, willing buyer and seller in an arm's-length transaction.

Goodwill

The excess of the cost of the acquired enterprise over the sum of the amounts assigned to identifiable assets acquired net of any liabilities assumed.

Hedge effectiveness

The degree to which offsetting changes in fair values or cash flows attributable to the hedged risk are achieved by the hedging instrument.

Hedged item

An asset, liability, firm commitment, or forecasted future transaction that (1) exposes the entity to risk of changes in fair value or changes in future cash flows, and that (2) for hedge accounting purposes is designated as being hedged.

Hedging

Designating one or more hedging instruments such that the change in fair value is an offset, in whole or part, to the change in the fair value or the cash flows of a hedged item.

Hedging instrument

For hedge accounting purposes, a designated derivative or (in limited instances) another financial asset or liability whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item. Nonderivative financial assets or liabilities may be designated as hedging instruments for hedge accounting purposes only if they hedge the risk of changes in foreign currency exchange rates.

Held-for-trading

A financial asset which is acquired principally for the purpose of generating a profit from short-term fluctuations in price or dealer's margin. Regardless of why acquired, a financial asset should be denoted as held-for-trading if there is a pattern of short-term profit taking by the entity. Derivative financial assets are always deemed held-for-trading unless designated and effective as hedging instruments.

Held-to-maturity investments

Financial assets with fixed or determinable payments and fixed maturities, that entity has positive intent and ability to hold to maturity, except for loans and receivables originated by the entity.

Investee

An enterprise that issued voting stock that is held by an investor.

Investee capital transaction

The purchase or sale by the investee of its own common shares, which alters the investor's ownership interest and is accounted for by the investor as if the investee were a consolidated subsidiary.

Investment

An asset held by an enterprise for purposes of accretion of wealth through distributions of interest, royalties, dividends, and rentals, or for capital appreciation or other benefits to be obtained.

Investment property

According to IAS 40, investment property is land or a building, or part of a building, or both, held by the owner or by the lessee under a finance lease, to earn rentals or for capital appreciation purposes or both, as opposed to being held as

• An owner-occupied property (i.e. for use in the production or supply of goods or services or for administrative purposes); or

• Property held for sale in the ordinary course of business.

Investor

A business enterprise that holds an investment in the voting stock of another enterprise.

Joint control

The contractually agreed-on joint sharing of control over the operations and/or assets of an economic activity.

Joint venture

A contractual arrangement whereby two or more parties undertake an economic activity subject to their joint control.

Long-term investment

An investment other than a current investment.

Market value

The amount obtainable from the sale of an investment in an active market.

Marketable

Assets for which there are active markets and from which market values, or other indicators that permit determination thereof, are available.

Owner-occupied property

Property held by the owner (i.e., the enterprise itself) or by a lessee under a finance lease for use in the production or supply of goods or services or for administrative purposes.

Significant influence

The power of the investor to participate in the financial and operating policy decisions of the investee; however, this is less than the ability to control those policies.

Subsidiary

An enterprise that is controlled by another enterprise (its parent).

Undistributed investee earnings

The investor's share of investee earnings in excess of dividends paid.