Canadian Securities Course (CSC) Level 1 Practice Exam

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What is investment in associates?

Refers to the degree of ownership that a company has in another company.
Represents profits earned over time.
Indicates short-term investments by a company.
Pertains to shareholders' equity.

The correct answer is: Refers to the degree of ownership that a company has in another company.

Investment in associates refers to the degree of ownership that a company has in another company. This concept is used when one company has significant influence over the other company, but not total control. It typically involves owning between 20% to 50% of the voting stock of the investee company. This ownership level allows the investing company to have a significant influence over the financial and operating policies of the investee. The key point to remember is that investment in associates signifies a level of influence that is more than what would be considered a passive investment. The other options are not correct: - "Represents profits earned over time" does not accurately describe what investment in associates is. - "Indicates short-term investments by a company" does not relate to the definition of investment in associates. - "Pertains to shareholders' equity" is a broader concept and does not specifically define investment in associates.