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Transaction
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Equity method investment in accordance with ASC 323
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Subsidiary presented in parent company financial statements
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Impairment losses
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Recognize if the investment’s carrying amount exceeds its fair value and the decline in fair value is deemed to be other-than-temporary.
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Recognize proportionate share of the consolidated subsidiary’s impairment losses.
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Acquisition costs
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Include in consideration transferred to acquire an equity method investment and capitalize as a component of the cost of the assets acquired.
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In a business combination, expense and do not include as part of the consideration transferred.
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Capitalized interest on investee’s qualifying assets
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Capitalize interest on the investment only to the extent that the investee has qualifying activities as described in ASC 835-20.
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As long as qualifying assets and interest cost exist within the consolidated group, record proportionate share of the consolidated subsidiary’s capitalized interest.
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Losses in excess of investment
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Discontinue recording losses when the investment (and net advances) is reduced to zero unless the investor has committed to provide further financial support to the investee.
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Continue recording losses, as discontinuation would result in the carrying amount of the investment not equaling the parent company’s share of the subsidiary’s net assets.
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Change in previously held equity interest
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Treat a change in interest (e.g., increase in an equity method investment from 30% to 40%) as a step acquisition or as a disposition with the gain or loss recognized in the income statement.
If a reporting entity sells a portion of a foreign entity that is accounted for using the equity method, and its retained interest will also be accounted for using the equity method, it should recognize a pro rata portion of the accumulated CTA account attributable to the equity method investment when measuring the gain or loss on the sale.
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Treat a change in interest (not constituting a change in control) as an equity transaction.
If the consolidated subsidiary represents an entire foreign entity, none of the CTA balance is reclassified unless the parent company ceases to have a controlling financial interest.
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Dr. Investment in Subsidiary B |
$10 |
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Dr. Company A Equity/ APIC |
$20 |
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Cr. Cash |
$30 |
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