Question

When a company purchases shares (equity) in another company, the investment amount may exceed their share of the book value of the underlying net assets of the investee. How does the investing company account for this excess amount under the equity method?                            I don't understand someone told me that it should be accounted as goodwill. But under the equity methods it means that the investing company owns only 20-50%. Why the excess amount should be accounted as goodwill? I thought goodwill should be accounted only when the company buys whole other company, not part of it???

Answer 1

Solution:

In the event that there is finished procurement of one organization by another organization, and interest in Other organization (that is buy thought) surpasses the book estimation of the hidden net resources of the moving organization, the thing that matters is perceived as generosity.

In any case, when speculation is made just in part of offers of another organization, and if venture surpasses 20% of the exceptional casting a ballot supply of the investee organization, it is assumed that the financial specialist establish the capacity to hold huge impact over the basic leadership intensity of the investee.
In such case, value technique is utilized to represent changes in venture.

Under value strategy, if speculation surpasses a lot of the book estimation of the hidden net resources of the investee, at that point the contributing organization represent this abundance sum as other far reaching salary, since it is undiscovered gain.