If company A has less than 20% of investment in company B… shouldnt it be carrying at cost? or does it depend if the company is trading in a market? with 20-50% for sure we are using the equity method.
If company B isn’t trading actively, then cost. Otherwise go with the rules of Trading, AVS, or Held to Maturity.
A little Java program for you… If(stakes < 20%) { …if(publically_traded_company) …{ …MARKET METHOD …} …else …{ …COST METHOD …} }
More important that % ownership is relative influence on the company… Cost/MKT - No Influence Equity - Significant Influence Consolidation - Control
how about if i acquire 45% of the company but that company has no active market? is it at cost or market? -thanks
^^ Equity Method then!
So is it that whenever there is no active secondary market we always use cost, irregardless of % ownership or influence or control? I think it is right?
No, if you buy it you consolidate it, and if you are between 20-50% you use the equity method (most of the time).
Whether or not there is a secondary market is only going to come into play when deciding between cost / market. Over 20% and / or significant interest, use Equity. Over 50% and / or control, use consolidation.
I just work thru one example with an exception of this: “Over 50% and / or control, use consolidation.” … they didnt use consolidation method… guess which method they used? (hints: not propotional consolidation)