Hey guys,
Struggling a bit with Reading 16 “Intercorporate Investments”. One question I had was with the calculation of an investment using the equity method. For example, it seems there are two different calculations, one in example 4, and another in example 5.
In example 4 “Equity Method Investments with Goodwill”, part 2 “Calculate the investment in the associate” the steps are: Purchase price + company’s share of net income - dividends received - amortization of excess PP&E. While in example 5 “Equity Method with Sale of Inventory: Upstream Sale”, part 2 “Calculate the balance in the investment reported on the balance sheet” we see the calculation as:
Purchase price + equity income - dividends received Is this because the amortization of excess PP&E is included in the calculation of equity income? Sorry if this is confusing. On a similar (but larger) note, is there some kind of cheat sheet that lays out the different accounting methods in reading 16? Struggling atm with what method to use where, and how each affects the financial statements.
Best,