🎥+✏️Equity Method from A to Z part 1 of 2🟢

Responses

1. 

   Deleted User 24 March 2024

   In the FV calculation table – what amounts where used in year x1 & x2

   FV for X0 was $200k income + $10k Dividend + $35k = FV of $245K
   FV for X1 is income of $300 + $20k dividend + $37k FV adj = FV $282k

   $300 is not correct as it doesn’t equal $282….. back solving gives $225k??

   Bit lost here! What is the starting figure for year X1

   1. 

      Deleted User 29 March 2024

      Hello Sonja,

      The starting figure for 20X1 under the fair value method is USD 245,000 . In contrast, the beginning balance for 20×1 under the equity method is US$ 240,000.

      The investment amount under the fair value method increases/decrease with the fair value change USD 37,000 in case of 20×1, reaching to an ending balance of USD 282,000.
      Under the equity method the investment increases by the share of net income of investee USD 60,000 and decreases by the share of dividends of USD 20,000 reaching to an ending balance of USD 280,000.

      Hope this makes sense !

2. 

   Khondaker Ahmed 26 October 2024

   In this section we learned about
   – Companies can achieve significant influence through other method besides the general rule of owning voting shares between 20% and 50%
   – Companies may not have significant influence even though they may own voting shares between 20% and 50% due to other factors involved
   – Companies rarely pay book value when they purchase an investment and the extra cost paid for the market value over the actual book value needs to be allocated to identifiable assets and the additional cost needs to be amortized
   – If no assets have been identified, then the extra cost must be allocated to goodwill which has an indefinite life and doesn’t get amortized