FAR 3-4: Equity Method & Joint Ventures (External Reporting)

Question 1

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

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?

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 & U.S. GAAP?

Answer 3

• U.S. GAAP: Equity method

* IFRS: Equity method or proportionate consolidation

Question 4

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

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