Don’t remember the question in detail but I got 1355. Since the company used GAAP, equity method is used and the carrying value of the investment should be investment +0.5(net Income -Divs).
Slash Wrote: ------------------------------------------------------- > it was 1305 > > has nothing to do with control. you depreciate the > full amount for each method Agreed.
florinpop Wrote: ------------------------------------------------------- > exactly if they don’t have control it’s equity i > thought youwould not depreciate > but i know there was an example > i might pe wrong Agree with florinpop here.
i put 1355, but nice catch guys/ladies (with the deprecitation - I would have never known)…Looked it up myself and it should have been 1305 (but you already knew that didn’t you!)
even when using equity method you must adjust for depreciation, i think it comes down to whether the excess was depreciable assets or goodwill
the issue was that an amount of 150k above BV was paid. so you have to depreciate 50k/ year for any method (equity, prop cons, cons) you use.
finance03 Wrote: ------------------------------------------------------- > even when using equity method you must adjust for > depreciation, i think it comes down to whether the > excess was depreciable assets or goodwill Vignette said depreciatable assets. 100% sure.
-1
-1 FOR ME TOO…
1305 it is…
Isn’t the goodwill depreciation already in the net income figure it gave you for the subsid firm though?
I can’t remember exactly but it sounds familiar 
My logic was that if you’re presented with the net income of the subsiduary, that should already include any additional deperciation of assets/goodwill. Therefore it’s only necessary to take ob investment + 1/2 NI - 1/2 divis?
On CFAI: It stated that under equity method: B/S: Cost + NI of sub * % of holding - Dividend received It does not say anythign with regards to depreciation Therefore it has to be 1355
“It does not say anythign with regards to depreciation Therefore it has to be 1355” Except in this case you paid more for the 50% you bought, so there’s the issue of the extra $150K and the next three years.
Yes but that depreciation effect would already be in the NI figure you were given.
riot Wrote: ------------------------------------------------------- > Yes but that depreciation effect would already be > in the NI figure you were given. No it wouldn’t have been.
Why not? If the assets are written up on the subsid’s balance sheet then the dep must be included in its NI calculation?
The assets are not written up on the sub’s BS because this amount is above the fair market value and is thus recorded as goodwill on the parents BS. I guess it depends on the accounting standards they applied and whether they could amortize goodwill or had to do an annual impairment test.
Goodwill amortization shouldn’t come into play as the extra amount was added to depreciable assets it said. Question though. It did say dividends declared not paid. I was wondering if the dividends should be factored in.