Post on 26-Mar-2015
2-2-11
McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Reporting Intercorporate Investments in Common Stock
Baker / Lembke / KingBaker / Lembke / King
2Electronic Presentation by
Douglas Cloud Pepperdine University
2-2-22
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0% 20% 50% 100%
Level of Common Stock OwnershipLevel of Common Stock Ownership
Influence not significant
Significantinfluence
Control
Cost Method
EquityMethod
Consolidation
2-2-33
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The Cost MethodThe Cost Method
Investor Company purchases 20 percent of Investee Company’s common stock for $100,000 at the beginning of 20X1. Influence is determined to be not significant.
Investor Company purchases 20 percent of Investee Company’s common stock for $100,000 at the beginning of 20X1. Influence is determined to be not significant.
Investment in XYZ Company Stock 100,000Cash 100,000
Record purchase of XYZ Companystock.
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The Cost MethodThe Cost Method
During the year, XYZ has net income of $50,000 and pays dividends of $20,000.
During the year, XYZ has net income of $50,000 and pays dividends of $20,000.
20% of $20,000
Cash 4,000Dividend Income 4,000
Record dividend income from XYZ Company.
Note that ABC records only its share of the distributed earnings of XYZ.
Note that ABC records only its share of the distributed earnings of XYZ.
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On January 2, 20X1, Investor Company purchases 10 percent of Investee Company’s
common stock. Investee Company’s net income is $100,000 and dividends paid total $70,000.
On January 2, 20X1, Investor Company purchases 10 percent of Investee Company’s
common stock. Investee Company’s net income is $100,000 and dividends paid total $70,000.
Liquidating Dividends IllustratedLiquidating Dividends Illustrated
Cash 7,000Dividend Income 7,000
Record receipt of 20X1 dividend from Investee Company.
10% of $70,000
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On January 2, 20X2, Investee Company’s net income is $100,000 and dividends paid total $120,000. Thus,
Investee had cumulative net income of $200,000 and paid cumulative dividends of $190,000.
On January 2, 20X2, Investee Company’s net income is $100,000 and dividends paid total $120,000. Thus,
Investee had cumulative net income of $200,000 and paid cumulative dividends of $190,000.
Liquidating Dividends IllustratedLiquidating Dividends Illustrated
Cash 12,000Dividend Income 12,000
Record receipt of 20X1 dividend from Investee Company.
10% of $120,000
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For 20X3, Investee’s net income is $100,000 and $120,000 in dividends are declared and paid. Cumulative net income is now $300,000 and
cumulative dividends paid total $310,000.
For 20X3, Investee’s net income is $100,000 and $120,000 in dividends are declared and paid. Cumulative net income is now $300,000 and
cumulative dividends paid total $310,000.
Liquidating Dividends IllustratedLiquidating Dividends Illustrated
Cash 12,000Investment in Investee Company Stock 1,000Dividend Income 11,000
Record receipt of 20X3 dividend from Investee Company.
($310,000 - $300,000) x 10%10% x ($120,000 - $10,000)
10% of $120,000
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Equity MethodEquity Method
APB Opinion No. 18 requires that the equity method be used for reporting investments, other than
temporary, in common stock...
APB Opinion No. 18 requires that the equity method be used for reporting investments, other than
temporary, in common stock...
2-2-99
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Corporate joint ventures. Companies in which the
investor’s voting stock interest gives the investor the “ability to exercise significant influence over operating and financial policies” of that company.
Equity MethodEquity Method
...of thefollowing:
...of thefollowing:
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Equity MethodEquity Method
What is significant influence?
What is significant influence?
2-2-1111
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Equity MethodEquity Method
APB 18 states, “An investment (direct or indirect) of 20% or more of the voting stock of an investee should lead to the
presumption that in the absence of evidence to the contrary an investor has the
ability to exercise significant influence over an investee.”
APB 18 states, “An investment (direct or indirect) of 20% or more of the voting stock of an investee should lead to the
presumption that in the absence of evidence to the contrary an investor has the
ability to exercise significant influence over an investee.”
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Equity Method--Recognition of IncomeEquity Method--Recognition of Income
ABC Company acquires significant influence over XYZCompany by purchasing 20 percent of the common
stock of XYZ at the beginning of the year.
ABC Company acquires significant influence over XYZCompany by purchasing 20 percent of the common
stock of XYZ at the beginning of the year.
XYZ reports net income of $60,000.XYZ reports net income of $60,000.
Investment in XYZ Common Stock 12,000Income from Investee 12,000
Record income from investment in XYZ Co.
20% x $60,000
2-2-1313
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Equity Method--Recognition of DividendsEquity Method--Recognition of Dividends
XYZ declares and pays a $20,000 dividend.XYZ declares and pays a $20,000 dividend.
Cash 4,000Investment in XYZ Company Stock 4,000
Record receipt of dividend from XYZ.
20% x $20,000
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Equity Method--Carrying AmountEquity Method--Carrying Amount
Investment in XYZ Common Stock
Original cost 100,000Equity accrual ($60,000 x .20) 12,000Ending balance 108,000
Dividends ($20,000 x .20) 4,000
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Equity Method--Interim AcquisitionsEquity Method--Interim Acquisitions
Investment in XYZ Common Stock
Original cost 109,000Equity accrual ($60,000 x 1/4 x .20) 3,000Ending balance 108,000
Dividends ($20,000 x .20) 4,000
ABC Company acquires 20 percent of XYZ’scommon stock on October 1 for $109,000. XYZ earns
income of $60,000 and pays dividends of $20,000.
ABC Company acquires 20 percent of XYZ’scommon stock on October 1 for $109,000. XYZ earns
income of $60,000 and pays dividends of $20,000.
2-2-1616
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Equity Method--Cost Exceeds Book ValueEquity Method--Cost Exceeds Book Value
Ajax Corporation purchases 40 percent of the commonstock of Barclay Company on January 1, 20X1, for$200,000. Barclay has net assets with a book value
of $400,000 and a fair value of $465,000.
Ajax Corporation purchases 40 percent of the commonstock of Barclay Company on January 1, 20X1, for$200,000. Barclay has net assets with a book value
of $400,000 and a fair value of $465,000.
Cost of investment to Ajax $200,000
Book value of Ajax’s share of Barclay’s net assets (.40 x $400,000) (160,000)
Differential $ 40,000
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Cost of Investment$200,000
Fair value of net identifiable assets (40% x $465,000)
$186,000
Total differential$40,000
Excess of cost over fair value of net identifiable assets
$14,000
Excess of fair value over book value of net identifiable assets
$26,000
Book value of net identifiable assets (40% x $400,000)
$160,000
Equity Method--Cost Exceeds Book ValueEquity Method--Cost Exceeds Book Value
2-2-1818
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Equity Method--Cost Exceeds Book ValueEquity Method--Cost Exceeds Book Value
Barclay reports net income of $80,000 in 20X1.Barclay reports net income of $80,000 in 20X1.
Investment in Barclay Stock 32,000Income from Investee 32,000
Record equity-method income.
40% x $80,000
2-2-1919
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Equity Method--Cost Exceeds Book ValueEquity Method--Cost Exceeds Book Value
Barclay declares and pays a dividend of $20,000 in 20X1.Barclay declares and pays a dividend of $20,000 in 20X1.
40% x $20,000
Barclay reports net income of $80,000 in 20X1.Barclay reports net income of $80,000 in 20X1.
Investment in Barclay Stock 32,000Income from Investee 32,000
Record equity-method income.
Cash 8,000Investment in Barclay Stock 8,000
Record dividend from Barclay.
2-2-2020
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Equity Method--Cost Exceeds Book ValueEquity Method--Cost Exceeds Book Value
The $40,000 excess paid by Ajax is assigned to Land, $6,000, Equipment, $20,000, and Goodwill, $14,000. Equipment is
amortized, but land and goodwill are not.
The $40,000 excess paid by Ajax is assigned to Land, $6,000, Equipment, $20,000, and Goodwill, $14,000. Equipment is
amortized, but land and goodwill are not.
Equipment ($20,000 ÷ 5 years) $4,000
Income from Investee 4,000Investment in Barclay Stock 4,000
Amortize differential.
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Equity Method--Disposal of AssetsEquity Method--Disposal of Assets
If Barclay had purchased the land in 20X0 for $75,000 and sells the land in 20X2 for $125,000. Barclay recognizes a gain
on the sale of $50,000, and Ajax’s share is $20,000 (40%).
If Barclay had purchased the land in 20X0 for $75,000 and sells the land in 20X2 for $125,000. Barclay recognizes a gain
on the sale of $50,000, and Ajax’s share is $20,000 (40%).
Ajax’s share of Barclay's reported gain $20,000
Portion of Ajax’s differential related to land (6,000)
Gain to be recognized by Ajax $14,000
Income from Investee 6,000Investment in Barclay Stock 6,000
Remove differential related to Barclay’sland sold.
2-2-2222
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Equity Method--Purchase Additional SharesEquity Method--Purchase Additional Shares
ABC Company purchases 20 percent of XYZ’s common stock on January 2, 20X1, and another 10 percent on
July 1, 20X1, and the stock purchases are at book value.
ABC Company purchases 20 percent of XYZ’s common stock on January 2, 20X1, and another 10 percent on
July 1, 20X1, and the stock purchases are at book value.
Income, January 2 to June 30: $20,000 x .20 $ 4,000
Income, July 1 to December 31: $30,000 x .30 9,000
Income from Investment, 20X1 $13,000
Investment in XYZ Stock 13,000Income from Investee 13,000
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Equity Method--Purchase Additional SharesEquity Method--Purchase Additional Shares
XYZ declares and pays a $10,000 dividend on January 15 and again on July 15.
XYZ declares and pays a $10,000 dividend on January 15 and again on July 15.
January 15 dividend: $10,000 x .20 $2,000
July 15 dividend: $10,000 x .30 3,000
Reduction in Investment, 20X1 $5,000
Cash 2,000Investment in XYZ Stock 2,000
January 15, 20X1
Cash 3,000Investment in XYZ Stock 3,000
July 15, 20X1
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Equity Method--Change to Equity MethodEquity Method--Change to Equity Method
Aron Corporation purchases 15 percent of Zenon Company’s common stock on January 2, 20X1 and
another 10 percent on January 2, 20X4. Aron switches to the equity method on January 2, 20X4.
Aron Corporation purchases 15 percent of Zenon Company’s common stock on January 2, 20X1 and
another 10 percent on January 2, 20X4. Aron switches to the equity method on January 2, 20X4.
Originally under Restated under Year Net Income Dividends Cost Equity
Zenon Investment Income Reported by Aron
20X1 $15,000 $10,000 $1,500 $2,250
20X2 18,000 10,000 1,500 2,700
20X3 22,000 10,000 1,500 3,300
$55,000 $30,000 $4,500 $8,250
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The investment account and retained earnings of Aaron are restated as if the equity method had been applied
from the date of the original acquisition.
The investment account and retained earnings of Aaron are restated as if the equity method had been applied
from the date of the original acquisition.
Investment in Zenon Common Stock 3,750Retained Earnings 3,750
Restate investment account from cost toequity method.
$8,250 - $4,500
Equity Method--Change to Equity MethodEquity Method--Change to Equity Method
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Cost and Equity Methods ComparedCost and Equity Methods Compared
Recorded amount of investment at date of acquisition.
Cost MethodCost Method
Original cost
2-2-2727
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Cost and Equity Methods ComparedCost and Equity Methods Compared
Recorded amount of investment at date of acquisition.
Equity MethodEquity Method
Original cost
2-2-2828
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Cost and Equity Methods ComparedCost and Equity Methods Compared
Usual carrying amount of investment subsequent to acquisition
Original cost
Cost MethodCost Method
2-2-2929
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Cost and Equity Methods ComparedCost and Equity Methods Compared
Original cost increased (decreased) by investor’s share of investee's income (loss) and decreased by investor’s share of investee’s dividends and by amortization or write-off of the differential.
Equity MethodEquity Method
Usual carrying amount of investment subsequent to acquisition
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Cost and Equity Methods ComparedCost and Equity Methods Compared
Not amortized or written-off
Cost MethodCost Method
Differential
2-2-3131
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Cost and Equity Methods ComparedCost and Equity Methods Compared
Differential
Amortized or written down if related to limited-life assets of investee or assets disposed of.
Equity MethodEquity Method
2-2-3232
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Cost and Equity Methods ComparedCost and Equity Methods Compared
Income recognized by investor
Investor’s share of investee’s dividends declared from earnings since acquisition
Cost MethodCost Method
2-2-3333
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Cost and Equity Methods ComparedCost and Equity Methods Compared
Investor’s share of investee’s earnings since acquisition, whether distributed or not, reduced by
any amortization or write-off of the differential.
Equity MethodEquity Method
Income recognized by investor
2-2-3434
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Cost and Equity Methods ComparedCost and Equity Methods Compared
Investee dividends from earnings since acquisition by investor
Income
Cost MethodCost Method
2-2-3535
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Cost and Equity Methods ComparedCost and Equity Methods Compared
Investee dividends from earnings since acquisition by investor
Reduction of investment
Equity MethodEquity Method
2-2-3636
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Cost and Equity Methods ComparedCost and Equity Methods Compared
Investee dividends in excess of earnings since acquisition by investor
Reduction of investment
Cost MethodCost Method
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Investee dividends in excess of earnings since acquisition by investor
Reduction of investment
Equity MethodEquity Method
Cost and Equity Methods ComparedCost and Equity Methods Compared
2-2-3838
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APB 18--What is Significant Influence?APB 18--What is Significant Influence?
An investor owning less than 20 percent can still have significant influence. APB 18 stated a number of factors that could
indicate such influence.
An investor owning less than 20 percent can still have significant influence. APB 18 stated a number of factors that could
indicate such influence.
1. Representation on board of directors.2. Participation in policy-making.3. Material intercompany transactions.4. Interchange of managerial personnel.5. Technological dependency.6. Size of investment in relation to
concentration of other shareholdings.
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FASB InterpretationFASB Interpretation No. 35 No. 35 Evidence that an investor is unable to exercise significant influence over an investee:1. Opposition by the investee.
2. The investor and investee sign an agreement in which the investor surrenders significant rights as a shareholder.
3. Majority ownership of the investee is concentrated among a small group of shareholders who operate the investee without regard to the views of the investor.
4. The investor, desiring more information than is available to the investee’s other shareholders, tries to obtain that information, and fails.
5. The investor tries and fails to obtain representation on the investee’s board of directors.
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PSAK 13 InvestasiPSAK 13 Investasi
Investasi : investasi lancar dan inestasi jangka panjang
Harga perolehan ditentukan dengan nilai wajar aktiva yang diserahkan
Investasi jangka panjang dicatat sebesar harga perolehan, jika ada penurunan yang bersifat tidak sementara dicatat mengurangi investasi
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PSAK 15 PSAK 15 : Investasi pada perusahaan asosiasi: Investasi pada perusahaan asosiasi
Pengaruh signifikan 20%Dicatat dengan menggunakan metode ekuitas jika ada
pengaruh signifikanWalaupun lebih dari 20% tetap metode cost jika :
pembatasan yang ketat sehingga mengurangi kemampuan mengalihkan dana pada investor
Pengungkapandaftar dan penjelasan dari perusahaan asosiasi (nama, tempat, kedudukan, jumlah kepemilikan)metode yang digunakan untuk mempertanggungjawabkan investasi tersebut
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KUIS KUIS PT. Kenanga membeli 30% kepemilikan PT. Anggrek pada 1 April 2003 dengan menerbitkan saham sebanyak 1000.000 dengan nilai par 100 dan harga pasar 320. Saat pembelian ekuitas PT. Anggrek terdiri dari common stock 500.000.000, additional paid in capital 100.000.000 dan retained earning 300.000.000. Berikut asset yang memiliki perbedaan nilai buku dan nilai wajar
nilai buku nilai wajarTanah 100.000.000 200.000.000Bangunan (10) 200.000.000 240.000.000Peralatan (4) 130.000.000 100.000.000Hutang jk panjang (5) 100.000.000 120.000.000
Selama tahun 2003 laba PT. Anggrek 120.000.000, deviden 10 juta (Februari) dan 40 juta (September).
Buat jurnal selama tahun 2003 dan hitung nilai investasi 31/12/03
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Chapter TwoChapter TwoChapter Two
The The EndEnd