FSA Textbook question: Equity method

CFA Level II
#1

FSA Textbook P459 Q7

I think under equity method, asset doesn’t change no matter you include or exclude your investment in associate?

Why the answer is B instead of A?

#2

Investments in associates under the equity method are held as a noncurrent asset. The question is asking for asset turnover if you take out the asset - Revenue stays the same but assets would be lower. So the ratio goes up

#3

Sorry, I still don’t get it. so when you calculate asset turnover ratio, noncurrent asset is excluded?

I understand the revenue part but not sure about asset

#4

I think asset turnover = Revenue / average total asset ?

#5

Revenue / total asset

I don’t have the book but based on kwalew, they are asking *if* you remove the investment what happens to asset turnover. Assets go down, so …

#6

you need to take out the investment in associate from noncurrent assets. Assets will be lower, revenue stays same -> ratio increases

#7

Thanks. You are right. The question is

asset turnover ratio for Colorful Concepts excluding the investments in associates would:

So it’s not a comparison between pre-invest and post-invest. I misunderstood the question.