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 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. The existing equity method guidance requires a process similar to that used for consolidation in a business combination. We then aggregate the balance sheets using the acquisition method vs the equity method. Here a statistical FS item must be chosen for negative goodwill. Suppose a business (the investor) buys 25% of the common stock of another business (the investee) for 220,000 in cash. 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? The following table shows the balance sheets of two companies. The equity method of accounting is used to account for an organization’s investment in another entity (the investee). In this video, I will explain consolidated financial statements. This method is only used when the investor has significant influence over the investee. 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. The equity method is meant for investing companies that exert significant influence over the other company while still retaining minority ownership. The cost and equity methods of accounting are used by companies to account for investments they make in other companies. Acquisition method example. 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. The investor is deemed to exert significant influence over the investee and therefore accounts for its investment using the equity method of accounting. 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 basis. Equity Method Example. Equity Method— Acquisition at Interim Date (Continued) • When the purchase occurs between balance sheet dates, the amount of income earned by the investee from the date of the acquisition to ... • If the purchase differential has a debit balance, the equity method entry to amortize the Initial Equity Method Investment In a second step, assign these defined FS items to the individual consolidation methods in the Differentialdetail screen. 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