F3-Equity Method

Question 1

How is the year-end “investment in investee” reported on the balance sheet calculated under the equity method?

F3-12

Answer 1

Beginning investment in investee

    \+Investor’s share of investee earnings

   -Investor’s share of investee dividends

_ -Amortization of FV differences_

Ending investment in investee

Question 2

How is an investor’s equity method investment reported on the income statement?

F3-13

Answer 2

Investor’s share of investee earnings.

-Amortization of FV differences.

Equity in earnings/investee income

Question 3

How are joint ventures accounted for under IFRS and U.S GAAP?

F3-14

Answer 3

Joint ventures are accounted for using the equity method under both U.S GAAP and IFRS.

Question 4

In a step by step acquisition, what is the accounting treatment when significant influence is acquired?

F3-15

Answer 4

• Going from the cost method to the equity method is handled like a change in accounting principle-retroactively.
• Go back retroactively with the equity method but not with the new ownership percentage.
• Prior period financial statements are restated.