30 0 all three income items which total 45000 will

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* 30% 40,000 ** 30% 10,000 All three income items, which total $45,000, will appear on A Company’s statement of comprehensive income. The investment loss from discontinued opera- tions and the other comprehensive income items require the same presentation as would be made if A Company had discontinued operations or other comprehensive income of its own. Full footnote disclosure is required to indicate that these particu- lar items arise from an investment in associate accounted for by the equity method. Materiality has to be considered because these items do not require special treatment in A Company’s income statement if they are not material from A Company’s point of view, even though they are material from B Company’s perspective. Many of the accounting procedures for the application of the equity method are similar to the consolidation procedures for a parent and its subsidiary. Furthermore, the concepts underlying the procedures used in accounting for the acquisition of a subsidiary are also adopted in accounting for the acquisition of an investment in associate. The next two sections briefly describe procedures required in applying the equity method that are equally applicable under the consolidation process. In this chapter, we will describe the procedures very generally. We will discuss these procedures in more detail in later chapters when we illustrate the consolidation of a parent and its subsidiary. Acquisition Costs Greater than Book Values In the previous examples, we recorded Jenstar’s initial investment at its cost, but we did not consider the implications of this cost with regard to Safebuy’s book value at the time. We now add a new feature to equity method reporting by considering the difference between the amount paid The investor’s shares of income from continuing operations, discontinued operations, and other comprehensive income are reported separately. Many accounting procedures required for consolidated purposes are also required under the equity method.
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CHAPTER 2 INVESTMENTS IN EQUITY SECURITIES 51 for the investment and the investor’s share of the book value of the associate’s share- holders’ equity. Companies’ shares often trade at prices that are different from their book values. There are many reasons for this. The share price presumably reflects the fair value of the company as a whole. In effect, it reflects the fair value of the assets and liabilities of the company as a whole. However, many of the company’s assets are reported at historical cost or cost less accumulated amortization. For these assets, there will be a difference between the fair value and the carrying value. Some of the company’s value may be attributed to assets that are not even reported on the company’s books.
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  • Fall '12
  • Smith
  • Balance Sheet, Comprehensive income, Generally Accepted Accounting Principles, hiL01537_ch02_039-070.indd Page

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