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Fair-Value Method
Consolidation
Equity Method
The method is selected based upon the degree of influence the investor has over the investee.
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Available-for-Sale Securities
Any Securities not classified as Trading. Unrealized holding gains and losses are reported in shareholders equity as other comprehensive income (ie, not included in net income).
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Equity Method
Used when the investor has the ability to exercise significant influence on the investee operations Generally used when ownership is between 20% and 50%. Significant Influence might be present with much lower ownership percentages. (The accountant must consider the particulars!!!)
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An investment that is too small to have significant influence is recorded using the fair-value method, but When ownership grows to the point where significant influence is established . . . . . . all accounts are restated so that the investors financial statements appear as if the equity method had been applied from the date of the first [original] acquisition. - - APB FASB ASC (para. 323-10-35-33)
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When net income includes elements other than Operating Income, these elements should be presented separately on the investors income statement. Examples include:
Discontinued operations Extraordinary items
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Amortize the difference over the remaining useful life of the associated asset. For fiscal years beginning on or after Dec. 15, 2001, Goodwill will be carried forward without adjustment until the investment is sold or a permanent decline in value occurs.
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INVESTOR
Downstream Sale
INVESTOR
Upstream Sale
INVESTEE
INVESTEE