Describe what is meant by "reciprocal interests" between an investor and investee.

Expert Solution

A reciprocal interest arises when an investee holds an equity method investment in the equity method investor (reporting entity).

When a reciprocal interest exists, applying the equity method to the investee’s total net income would result in the investor double counting income (from the investee's equity method earnings from its investment in the investor) if no elimination entries were recorded.Elimination of intraentity profits and related disclosures, requires the elimination of intra-entity equity method profits until realized by the investor or investee as if the investee were a consolidated subsidiary.The reciprocal interest should be eliminated.

The requirements of IAS 28(2011):26 apply to accounting for reciprocal equity interests regardless of how the investee has accounted for the reciprocal interest. Reciprocal interests should be treated in a similar manner to an investor's own shares, resulting in consolidation elimination entries to eliminate the investor's share of the reciprocal interests.

jeff jeffy answered 2 years ago

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