schweser book 2 page 133, at the very bottom, The use of the equity method is not allowed, even if the ownership level is more than 20%, if any one of the following conditions applies: 1. The investor cannot exercise influence over the investee because of pending litigation between the two entities. 2. The investor is unable to vote its shares or otherwise influence management of the investee because of restrictions such as a standstill agreement. 3. A majority shareholder controls the investee’s operations. 4. There are other factors that indicate lack of influence on the part of the investor, such as a lack of seats on the board of directors. session 5, schweser slide 29, said “equity method not allowed and consolidation required, even if ownership level is <50%” I was wondering if this using consolidation method is right! since in the book it didn’t mention it at all! Maybe we should use FAS115 instead of equity method if one of the above listed 4 items happened, what do you guys think?
anyone helps me? so confused…
orangeyt, Tim Smaby mentioned this in the online weekly class there was an errata on that slide 29. It should read as in the Notes, “Equity method not allowed and cost method required, even if ownership level is less than 20%, if any of these conditions hold…” Put your mind at ease…