Investment in Associates Balanace (Equity Method)

CFA Level II
#1

My understanding is that in the equity method, your investment in associates account goes like this:

Beginning Investments

  • Share of of Net Income

  • Share of dividends received

  • Amortization of excess purchase price paid (related to Goodwill)

= Ending Investments account

If you follow this format, doesn’t the amortization of goodwill get counted twice? Doesn’t it also flow through your net income?

#2

Good will is not amortized, its tested for impairment. The amortization that you subtract could be the excess price paid for PPE for example

#3

Yeah - I agree and understand that GW isn’t amortized.

My question still stands though: if you subtract out the excess price paid (for something like PP&E) from the investments account, aren’t you double counting it? My impression is that you also need to subtract the amortized excess price paid for PP&E when you go from revenue -> net income.