# FRA Intercorporate Investments

Is amortization of excess purchase price subtracted from both:

1. Calculation of NI

2. Calculation of Investment value

Only calculation of inv Val. NI to reflect proportionate share of NI of investee without any adjustments.

Sorry I couldn’t understand. So we subtract amortization and dividends only from the calculation of Investment value?

NI will not be adjusted for amortization or dividend?

In Example 6 in the book, amortization is being subtracted from the calculation of net income. Why is that so?

Technically it flows through both the investment value and the share of equity income, but I wouldn’t try and memorize where it shows up. It seems better to understand how each of the accounts relate to each other.

Equity income = % share of the subsidiary’s net income - % share of any amortization of excess purchase price - % share in inter-company unrealized profits + inter-company realized gross profits (that were previously unrealized)

Investment value = Beginning investment value + equity income - % share in dividends

As you can see, you subtract excess amortization of purchase price from only equity income, but ultimately that flows to the investment value as well.

Hang on, for % share of any amortization of excess purchase price, doesn’t this just show up in GW? What’s the mechanics of the amortization?

Yes, affects your equity income, see blue box example 5 in CFAI curriculum.

Thanks, and on a related topic, when accounting for partial goodwill, how does show up on acquirer’s balance sheet? Is it included part of the investment in associates as a single line item?

Goodwill is a separate line item on the acquirer’s balance sheet.

With consolidation, there is no single line item “investment in associates” as both companies financial statements are consolidated.

Guys as far as I know, in the income statement we only account for the share of NI. The amortization is substracted once we want to find the investment value in the balance sheet

In fact, I was also thinking the same.way till.yday, but then I checked back and found tht, we need to subtract both, amortization of excess price and any unrealised profit to arrive at equity income.to.be reported.

Yes. As far as I know, there has to be a double effect otherwise the books won’t tally.

So your purchase price (which is on the debit side) will get subtracted - credit effect

And that amount you’ll show as a non operating expense by subtracting it from Net Income - debit effect

thank you

This is my understanding-

Income Statement-

Share of investee’s Net income/earnings

(-) share of excess of FV over BV depreciation/amortization

(-) share of profits not yet realized i.e. still in A-T pocket

Balance Sheet

Initial investment

(+) Share of investee’s Net income/earnings

(-) share of investee’s dividends

(-) share of excess of FV over BV depreciation/amortization