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:

Regardless, when theory is made just in part of offers of another association, and if adventure outperforms 20% of the excellent throwing a vote supply of the investee association, it is expected that the budgetary authority set up the ability to hold colossal effect over the essential administration power of the investee. In such case, esteem method is used to speak to changes in endeavor.

If there is done obtainment of one association by another association, and enthusiasm for Other association (that is purchase thought) outperforms the book estimation of the concealed net assets of the moving association, what makes a difference is seen as liberality.

Underestimate methodology, if hypothesis outperforms a ton of the book estimation of the concealed net assets of the investee, by then the contributing association speak to this wealth aggregate as other sweeping compensation, since it is unfamiliar gain.