Under Equity method, is amortization/depreciation of excess purchase price paid for PP&E only deducted from the concerned account on the I/S or it also reduces the inv account on B/S?
It also reduces the carrying amount on the balance sheet!
I hate schweser!!! It doesnt deduct it from the B/S account, or did i just miss it?
Anyway! Thank you BlackMamba!
Yes it reduces the “investment in associates” account (not inventory account) under the B/S
As for I/S, you include the % ownership x investee’s net income, which already minuses off depreciation
No problem! Yea, you must have missed it.
I am going to bump this up again. I rechecked schweser, it does not deduct it from the balance sheet account. Also, i was doing a IFT mock, they dont deduct it either. I know what CFAI does is set in stone, but just wanted to reconfirm this, please.
On another thought, deducting it again from the balance sheet account, wont it be like deducting it twice? Once through net income that gets added to the balance sheet account and second as a standalone deduction?
Anyone, please?
Schweser explains that the added value to PP&E increases the Depreciation Expense. I reckon any Depreciation Expense has to come from a deduction in an asset somewhere; the books have to add up in the end.
I guess you can think of it this way: if have less net income (income statement) due to amortization of excess PP&E, you will have less retained earnings (balance sheet)
On the balance sheet, you report:
amount paid for the % stake in subsidiary
- % stake of subsidiary’s net income
-
% stake of subsidiary’s dividends
-
amortization. For instance, if the subsidiary’s equipment had a FV of 100,000 and BV of 50,000 and is depreciated straight-line over 10 years, you will deduct (50,000/10 x 30 %) from your balance sheet in year X.
reduces both investment account and equity reported income.