The equity method is meant for investing companies that exert significant influence over the other company while still retaining minority ownership. This Roadmap provides Deloitte’s insights into and interpretations of the guidance on accounting for equity method investments and joint ventures. What is the Equity Method? This Advanced Accounting video explains Consolidations, Differentials, majority-owned subsidiaries, and the Equity Method. Applying the equity method to joint ventures and associates in accordance with IAS 28 1 requires an investor to recognize its share of the investee’s comprehensive income or loss. Suppose a business (the investor) buys 25% of the common stock of another business (the investee) for 220,000 in cash. This method is only used when the investor has significant influence over the investee. The equity method of accounting is used to account for an organization’s investment in another entity (the investee). For the differential on the liabilities side, an FS item can be created in the area of appropriations. The investor is deemed to exert significant influence over the investee and therefore accounts for its investment using the equity method of accounting. In this video, I will explain consolidated financial statements. The existing equity method guidance requires a process similar to that used for consolidation in a business combination. The equity method is an exception. Let’s turn to an acquisition method of accounting example. The following table shows the balance sheets of two companies. However, as noted within the proposed ASU, an equity method investor may not have access to the information necessary to determine the acquisition-date fair value of the investee’s The accounting principles related to equity method investments and joint ventures have been in place for many years, but they can be difficult to apply. Acquisition method example. We then aggregate the balance sheets using the acquisition method vs the equity method. basis. This is a good opportunity to revisit the overall impairment requirements for investments in equity-method investees under IFRS and compare them to US GAAP. Equity Method Example. The cost and equity methods of accounting are used by companies to account for investments they make in other companies. Here a statistical FS item must be chosen for negative goodwill. 5.2.1 Guarantee of an Equity Method Investee’s Third-Party Debt 107 5.2.2 Collateral of the Investee Held by the Investor When Equity Losses Exceed the Investor’s Investment 107 5.2.3 Investee Losses If the Investor Has Other Investments in the Investee 108 5.2.3.1 Percentage Used to Determine the Amount of Equity Method Losses 113 Initial Equity Method Investment The equity method of accounting, sometimes referred to as “equity accounting,” is the accounting treatment for one entity’s partial ownership in another entity when the entity making the investment is able to influence the operating or financial decisions of the investee. In a second step, assign these defined FS items to the individual consolidation methods in the Differentialdetail screen. 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