Using the equity method for 20%-50% influence , what is the effect on the balance sheet? Is the “equity investment” (net of tax) listed as an asset?
The equity investment is listed as an asset, but it’s not net of tax.
It increases by your share of the subsidiary’s net income (which isn’t taxable), decreases by any excess depreciation/amortization you recognize (the taxes for which come out of cash, so aren’t included in the investment), and decreases by any dividends you receive (the taxes for which also come out of cash).
Okay, thanks. Following up question relating to Intercorporate Investments
Reading 17, EoC #5.
At 31 December 2010, assuming control and recognition of goodwill, Cinnamon’s reported debt to equity ratio will most likely be highest if it accounts for its investment in Cambrdge using the:
B. full goodwill method
C. partial good will method
How does goodwill affect the balance sheet? Goodwill is an asset, no? The solutions didn’t help much. All it said was the full method leads to a higher equity.
Goodwill is an asset. If you report full goodwill instead of partial goodwill, minority interest will increase by the amount that goodwill increases: higher assets, higher equity.