Investments in equity securities that are purchased and held for short term principally for the purpose of generating gains on resale are classified as trading securities and reported at fair value with unrealized gains and losses included in the earnings.
Investments in equity securities that are not trading securities are classified as available-for-sale (AFS) securities and reported at fair value with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders’ equity. These are typically short term investments made by the investor. It is generally presumed that if the investor holds less than 20% voting rights of the investee company then no significant influence can be exercised on the investee company unless there is evidence to prove otherwise. Cost method is adopted for investments of this nature.
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