Application of the Cost Model to the Investment One Company

question 54

Multiple Choice

Application of the cost model to the investment one company makes in another entity's shares is straightforward and includes all of the following EXCEPT

• A) recognize the cost of the investment at the fair value of shares acquired.
• B) unless impaired, report the investment at its fair value at each balance sheet date.
• C) recognize dividend income when the entity has a claim to the dividend.
• D) when the shares are disposed of, derecognize them and report a gain or loss on disposal in net income.

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Definitions:

Return On Excess Cash

A measure of how effectively a company is using its idle cash, beyond what is needed for its immediate operating needs, to generate returns.

Sustain Stock Price

Efforts or strategies employed by a company to maintain or increase the market value of its shares over time.

Gaining Control

The process of acquiring the ability to direct the affairs of an entity, often through ownership of a majority of its voting shares.

Business Relationships

The networks and connections a company maintains with its partners, suppliers, customers, and stakeholders to support its operations and growth.