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Equity Method Accounting for Subsidiaries

This document outlines the accounting entries required under the equity method and cost method for investments in subsidiaries. For the equity method in the first year after acquisition, entries include acquiring the subsidiary, dividends from the subsidiary, sharing in the subsidiary's net income, and eliminating entries. In subsequent years, entries include dividends, sharing in net income, amortizing excess assets/liabilities, and realizing or deferring profits from downstream and upstream sales. The cost method follows a similar process without sharing in net income and with amortizing goodwill instead of excess assets/liabilities.

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14 views2 pages

Equity Method Accounting for Subsidiaries

This document outlines the accounting entries required under the equity method and cost method for investments in subsidiaries. For the equity method in the first year after acquisition, entries include acquiring the subsidiary, dividends from the subsidiary, sharing in the subsidiary's net income, and eliminating entries. In subsequent years, entries include dividends, sharing in net income, amortizing excess assets/liabilities, and realizing or deferring profits from downstream and upstream sales. The cost method follows a similar process without sharing in net income and with amortizing goodwill instead of excess assets/liabilities.

Uploaded by

ralphalonzo
Copyright
© All Rights Reserved
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EQUITY METHOD

4. Intercompany dividends, with NCI


5. Intercompany downstream and upstream sales/gains*

First year after acquisition

6. Realize deferred downstream and upstream sales*

Subsidiary investment-related entries [ADSAUR]


1. Acquisition of subsidiary

7. Defer downstream and upstream sales*

2. Dividends from subsidiary

8. Intercompany downstream and upstream depreciation expense*

3. Share in net income of subsidiary

9. NCI in subsidiarys net income

COST METHOD

4. Amortization of allocated excess of assets, liabilities, and goodwill impairment loss


5. Unrealized profit/gaindownstream and upstream sales*
6. Realized gaindownstream and upstream sales*

First year after acquisition

Eliminating entries [EAGI IDIN]

1. Acquisition of subsidiary
2. Dividends from subsidiary

1. Equity accounts of subsidiary, with NCI


2. Allocated excess, with NCI

Subsidiary investment-related entries [AD]

Eliminating entries [EAGI IDIN]

3. Goodwill impairment loss, depreciation, and amortization

1. Equity accounts of subsidiary, with NCI

4. Intercompany dividends, with NCI

2. Allocated excess, with NCI

5. Intercompany downstream and upstream sales/gains*

3. Goodwill impairment loss, depreciation, and amortization

6. Defer downstream and upstream sales*

4. Intercompany dividends, with NCI

7. Intercompany downstream and upstream depreciation expense*

5. Intercompany downstream and upstream sales/gains*

8. NCI in subsidiarys net income

6. Defer downstream and upstream sales*


7. Intercompany downstream and upstream depreciation expense*
8. NCI in subsidiarys net income

Second year after acquisition

Subsidiary investment-related entries [DSARUR]


1. Dividends from subsidiary
2. Share in net income of subsidiary

Second year after acquisition

3. Amortization of allocated excess of assets and liabilities


4. Realized profitdownstream and upstream sales*

Subsidiary investment-related entries [D]


1. Dividends from subsidiary

Eliminating entries [REAGI IRDIN]

5. Unrealized profitdownstream and upstream sales*

1. Retroactive adjustment

6. Realized gaindownstream and upstream sales*

2. Equity accounts of subsidiary, with NCI

Eliminating entries [EAGI IRDIN]

3. Allocated excess, with NCI

1. Equity accounts of subsidiary, with NCI

4. Goodwill impairment loss, depreciation, and amortization

2. Allocated excess, with NCI

5. Intercompany dividends, with NCI

3. Goodwill impairment loss, depreciation, and amortization

6. Intercompany downstream and upstream sales/gains*

7. Realize deferred downstream and upstream sales*


8. Defer downstream and upstream sales*
9. Intercompany downstream and upstream depreciation expense*
10. NCI in subsidiarys net income

profit = inventory
gain = equipment and land

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