Hi guys Im struggling on this question. there are 2 companies silk road and color concepts. Its a fairly long paragraph of details but the important details you would need to know is that there is an accounting change where all operating leases are going to be capitalized. this is the specific parts of the q"
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my question is why are we doing any adjustment for assets at all? this is investment in associates which means its equity method which means there should be no adjustment to assets because equity method just takes the same assets as before so sales/assets should be exactly the same as before as well. the only difference I can think of implementing the equity method is that current assets are split between cash paid for investment in investee and the remainder as current assets but otherwise the same assets figure is reported as before. can someone please advise?
Maybe the question just wants you to exclude the investment in associates as it did not tell you to assume the investment in associates did not take place and hence you would have the cash back. The investment asset value could have gone up if it had income depending on when the investment was purchased?
“I’m not sure that I understand your plight. They ask you to exclude the investment in associates, so they exclude the investment in associates. Why would you expect them not to do that?” It says in this question “Leenid also discovers that the company has a 204 ending asset balance (188 beginning) for investments in associates, primarily due to its 20 percent interest in the equity of Exotic Imports”
20% of equity in exotic means that the company should not have made any adjustments to its assets in the first place. investment in associates means this is using the equity method. under the equity method there is no adjustments to assets right?
im confused because this question seems to be using the equity method of accounting for investment in companies (where there is no change to the balance sheet) to then saying remove the assets in investments- this is what is confusing me.