Under the equity method, the investment is recorded at cost in the balance sheet. Does that mean we just put the whole cost into the investment in other companies line? What about goodwill? where will it be?
Under the acquisition method, all all assets and liabilities of the target company is marked up to fair value and consolidated into the parent’s balance sheet. In that case, the difference between cost and net asset value will be allocated to Goodwill.
Thanks a lot
investment acount under equity method= Invested Capital + firm’s share of income - firm’s share of divident - amortization of Excess purchase Price Atributable to Assets
Thanks mehdizaman, could you also comment on the goodwill part?
Does it mean that no goodwill is concerned in equity method? (then schweser really confuses me because one of the question in mock 4 requires us to compute goodwill when it was under equity method)
Goodwill under Equity method = Excess Purchase Price - Excess purchase Price Attributable to Assets
I would recommend going to cirriculum reviewing the examples related to these, they are quite simple and helpful
under equity method, goodwill is not reported separately… its part of carrying value.