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2 when it becomes necessary to change from the equity

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Unformatted text preview: ics: (1) ability to guide the subsidiary's ongoing activities and (2) ability to derive benefit from that power. This usually means that the corporation can choose several board members and can control policy making. (2) When it becomes necessary to change from the equity method to another method, no adjustment is made to the carrying amount of the investment. The equity method is simply discontinued and the new method is applied from then on. The investment account balance when the equity method is discontinued would serve as the new "cost" basis for writing the investment up or down to fair value in the next set of financial statements. 185. (1) When it becomes necessary to change to the equity method from another method, the investment account should be retroactively adjusted to the balance that would have existed if the equity method always had been used, and retained earnings would be adjusted for the offsetting effect. 186. IFRS require that accounting policies of investees be adjusted to correspond to those of the investor when applying the equity method. U.S. GAAP has no such requirement. Also, IFRS allow investors to account for a joint venture using either the equity method or "proportionate consolidation," whereby the investor combines its proportionate share of the investee's accounts with its own accounts on an item-by-item basis and reports goodwill, if any. U.S. GAAP generally requires that the equity method be used to account for joint ventures. 187. When a company elects the fair value option for held-to-maturity or available-for-sale investments, it simply reclassifies those investments as trading securities and accounts for them in that fashion. When a company elects the fair value option for a significant-influence investment that normally would be accounted for under the equity method, that investment is not reclassified as a trading security. Rather, the investment still appears on the balance sheet as a significant-influence investment, but the amount that is accounted for at fair value is indicated on the balance sheet either par...
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