Topic Test: FRA - AdOre

CFA Level II
#1

In Question 5, it is trying to compare ratios between the change from using Acquisition method to Joint Venture (U.S. GAAP rules). However, I’m very confused as to why under Joint Venture, which utilize equity method, it reports 50% of the net assets as “investment”… I thought that under equity method, you don’t report assets of the subsidiary in your balance sheet.

Why is this allowed as an exception to the rule of equity method in the case of JVs? and what does it mean by net assets as Investment?

Appreciate any explanation to this.

#2

My understanding is the following:

the question asks about the time when the change in ownership happens. Until then it was acquisition method so mother comp. reported 100% of Ad Ore’s assets on its B/S, but for equity method they start with the value of the investment. Normally the purchase price but in this case they agree the value will be equal to the book value of Ad Ore. So they start 2012 with 50% of assets as the ‘one line item’.