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Concept introduction:
Fair Value Method: Fair market value method is applied when there is less than 20% share in company. In fair market value method we value the investment on its market value and difference is recorded in the income statement as a profit or loss.
Equity Method: In equity method we value the investment on the basis of their proportionate share in the assets of the investee company. Equity method applies when there is at least 20% share holding in the company. When there is 20% holding in any company then we have a significant control over the company.
Requirement 1:
To calculate:
Concept introduction:
Fair Value Method: Fair market value method is applied when there is less than 20% share in company. In fair market value method we value the investment on its market value and difference is recorded in the income statement as a profit or loss.
Equity Method: In equity method we value the investment on the basis of their proportionate share in the assets of the investee company. Equity method applies when there is at least 20% share holding in the company. When there is 20% holding in any company then we have a significant control over the company.
Requirement 2:
To calculate:
Journal entry to record the investment.
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Chapter A2 Solutions
Cornerstones of Financial Accounting
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Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning