Adjusted Cost Method & Equity Method

Question 1

under the equity method

Answer 1

it is required to disclose the following:

The name of each investee (not investor) and percentage of the entity’s ownership of each investee’s common stock

The entity’s accounting policies for investments in common stock

The difference, in any, between the carrying amount of the investment and the amount of the entity’s underlying equity in the investee’s net assets and the entity’s accounting treatment of the difference

Question 2

When changing from the cost to the equity method

Answer 2

the investor simply prospectively applies the equity method.

Under the equity method, dividends received from the investee are not counted as income but as a reduction to the investment account.

Question 3

fair value option

Answer 3

take dividend as income, not net income

gain on investment recognized in INCOME, not OCI

Question 4

equity method

Answer 4

net income is income

dividend is not income. dividends are recognized as a REDUCTION of the investment

investment = 
beg
- div
\+/- income
= end invest

Question 5

proportionate consolidation approach

Answer 5

The equity method accounting approach used for joint operations under IFRS is known as the proportionate consolidation approac

Question 6

factors as indicative of the ability to exercise significant influence over an investee

Answer 6

Representation on the board of directors
Participation in policy-making processes
Material inter-entity transactions
Interchange of managerial personnel
Technological dependency

Question 7

goodwill

Answer 7

implied goodwill if the cost exceeds a proportionate amount of the fair value of the underlying net assets.