# Asset T/O Equity Method -Intercorp Investments -CFAI Rdg 23 EOC # 30

CFAI Vol II, Rdg 23, ECO #30, solution pg 187, balance sheet pg 183 In calculating Beginning Total Asset Turnover using the Equity Method, I’m not understanding how to calculate total assets. The solution is 950/2,140. 2,140 is simply NinMount’s Total Assets and I’m wondering Why not add 1/2 of Boswell’s total assets to the denominator 2, 140? Also, in calculating the same thing but with Consolidation, the solution is Assets = 2,140 -320 +1,070 + 60. Why does the 320 investment in Boswell have to be removed from Assets? And why does 60 get added - b/c it was previously unrecorded?

1. Equity method: Only the proportional share in Boswell held by NinMount is taken into account. This share (=320) already appears on NinMount’s balance sheet - that is the reason why it is not added to total assets. 2) Consolidation: First, you take out the the investment in Boswell from NinMount’s balance sheet in order to avoid double counting (-320). Second, you combine both companies into one balance sheet, i.e. add the total asset value of Boswell to NinMount’s (+1,070). Third step is the most difficult to figure out. You calculate the goodwill as difference between purchase price of Boswell (2*320) and the value of it’s net assets (1070-490=580). This is then removed from Boswell’s total assets, as we do no want to include goodwill in consolidation since it bears no tangible value (-60).