In its response to Concept Checkers question 1 of Assigned Reading #43 “International Standards Convergence”, Schweser says “an influential security is accounted for using the equity method. Under the equity method, the balance sheet account is not reported at fair value.” This seems in conflict with Schweser’s comment on page 318 that says “under the equity method, a pro rata share of the investee’s net income is added to the firm’s assets. Any dividends received from the investment reduce the investor’s assets.” Could someone please elaborate on the t-accounting for the equity method? Neither the CFA text nor Schweser gives much detail. I don’t think I fully understand this. Many thanks.
I do not think many people use t-accounting for FSA. That is more accounting
I do not have access to the materials you refer to but: cnd Wrote: ------------------------------------------------------- > In its response to Concept Checkers question 1 of > Assigned Reading #43 “International Standards > Convergence”, Schweser says “an influential > security is accounted for using the equity method. > Under the equity method, the balance sheet > account is not reported at fair value.” Under the equity method, you only recognize your share of net assets; that’s based on the book values, and that’s probably why they say that it is not reported at fair value. > This seems in conflict with Schweser’s comment on > page 318 that says “under the equity method, a pro > rata share of the investee’s net income is added > to the firm’s assets. Any dividends received from > the investment reduce the investor’s assets.” I do not understand why you say there is a conflict, as these two paragraphs talk about different things (the first one mentions the balance sheet, the second one, the income statement). Could you please clarify? > Could someone please elaborate on the t-accounting > for the equity method? Neither the CFA text nor > Schweser gives much detail. I don’t think I fully > understand this. > > Many thanks.