MindMap Gallery Long-term equity investment 1 mind map
This is a mind map about long-term equity investment 1, including initial measurement, the principles of initial measurement, the difference in consideration paid, the disposal and impairment of long-term equity investment, etc.
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long term equity investment
initial measurement
Control (parent and subsidiary)
Merger of holdings under common control (Internal to the group)
Merger of holdings not under common control (Merger between unrelated parties)
joint control (Joint ventures)
Tremendous influence (Associate)
Principles of initial measurement
Control (parent and subsidiary)
The initial investment cost of the long-term equity investment is based on the share of the book value of the combined party's owner's equity in the ultimate controlling party's consolidated financial statements obtained on the merger date.
At fair value (merger cost) as the initial investment cost of long-term equity investments
Fair value Transaction costs
The difference in consideration paid
Control (parent and subsidiary)
The difference is on the credit side: adjustment to capital reserve (capital premium or equity premium); The difference is on the debit side: if the capital reserve (capital premium or equity premium) is insufficient to offset, the surplus reserve and undistributed profits will be offset in turn.
Treated as buy now and buy later Need to recognize disposal gains and losses
Intermediary fees such as auditing, legal services, evaluation consulting, etc. incurred
Control (parent and subsidiary)
Should be included in the current profit and loss when incurred - administrative expenses Borrow: administrative expenses Loan: bank deposit
As the initial investment cost of a long-term equity investment.
Transaction costs for equity securities or debt securities issued by the merging party or purchaser as consideration for the merger
Transaction costs directly related to the issuance of equity instruments as merger consideration should be offset against capital reserve (capital premium or equity premium). If the capital reserve (capital premium or equity premium) is insufficient to offset, the surplus reserve shall be offset in turn. and retained earnings. Borrow: Capital Reserve - Equity Premium Loan: bank deposit
Transaction costs directly related to the issuance of debt instruments as merger consideration shall be included in the initial recognition amount of the debt instruments.
Cash dividends or profits declared but not yet distributed included in the actual price paid or consideration
Cash dividends or profits declared but not yet distributed included in the actual price paid or consideration
control
Merger of holdings under common control
The merging party acquires the equity of the merged party by paying monetary funds, transferring non-cash assets, etc. Borrow: Long-term equity investment Capital reserve—share premium Surplus reserve Profit distribution - undistributed profits Loans: bank deposits and other related assets Capital reserve—share premium
The merging party acquires the equity of the merged party by issuing shares Borrow: Long-term equity investment Credit: Equity [face value] Capital reserve—share premium
Merger of holdings not under common control
Obtained by paying cash Borrow: Long-term equity investment Loan: bank deposit
Inventories are paid in the form of non-monetary assets and are treated as normal transfers: Borrow: Long-term equity investment Loan: Main business income Taxes payable - Value-added tax payable (output tax) Borrow: Main business costs Inventory impairment Credit: Inventory goods
If the inventory is raw materials, the account is replaced with other business income and other business costs.
In the form of payment of non-monetary assets - fixed assets, treated as normal transfer:
① Borrow: Long-term equity investment Credit: Liquidation of fixed assets [Fair value] Taxes payable - Value-added tax payable (output tax)
②Debit: Fixed assets liquidation Accumulated depreciation Credit: fixed assets
③Debit: Fixed assets liquidation Credit: Gains and losses on asset disposal
Or borrow: Asset disposal gains and losses Credit: Fixed assets liquidation
Intangible assets are paid in the form of non-monetary assets and are treated as normal transfers: Borrow: Long-term equity investment Accumulated amortization Credit: Intangible assets Taxes payable - Value-added tax payable (output tax) Profit and loss from asset disposal [squeeze, borrow or loan]
Obtained by issuing shares Borrow: Long-term equity investment Credit: Equity [face value] Capital reserve - equity premium
joint control Tremendous influence
Borrow: Long-term equity investment - investment cost [Consideration Expenses] Loan: bank deposit, etc.
Subsequent measurement—cost method, equity method
Subsequent measurement
cost method
Control (including mergers of holdings under the same control and those not under the same control)
equity method
joint control (Joint ventures)
Tremendous influence (Associate)
Adjustments to initial investment costs
cost method
× (No accounting entries are prepared)
equity method
When the initial investment cost is less than the investment, the investing enterprise shall have a share of the fair value of the investee’s identifiable net assets. Borrow: Long-term equity investment - investment cost [difference between the two] Credit: Non-operating income
When the initial investment cost is greater than the investment, the investing enterprise shall enjoy a share of the fair value of the identifiable net assets of the investee without accounting treatment.
The invested enterprise realizes net profit and loss
cost method
×
equity method
Net profit realized by the invested unit: Borrow: Long-term equity investment - profit and loss adjustment Credit: Investment income
If the invested unit realizes a net loss, write the opposite entry
Adjustments to book net profit include several aspects
1. Are the accounting policies and accounting periods consistent?
2. Whether the fair value of the investee's identifiable net assets is equal to the book value when the investment is obtained
3. Whether there are unrealized gains and losses from internal transactions
Amount calculation
If the fair value of the identifiable net assets of the investee at the time of investment is equal to the book value, and there are no unrealized internal transaction gains and losses, there is no need to adjust the net profit or loss of the investee, and the amount in the entry = invested The net profit realized by the company in the current year * the shareholding ratio. If the two are not equal, or there are unrealized internal profits and losses, the net profit needs to be adjusted. The specific adjustments are as follows. The amount in the entry = the adjusted profit realized by the invested company in the current year. Net profit*shareholding ratio,
Adjustment of investment timing
Inventory: Appraisal of value-added: For external sales at the end of the period, the gross profit of the value-added part is reduced by profit; Fixed assets and intangible assets: Appraisal of added value, the added value will be supplemented by depreciation and amortization, and profit will be reduced;
Adjustments for unrealized internal gains and losses
Inventory: When there is no external sales in the current year, the gross profit amount is reduced by the profit (unsold ratio), and when there is external sales (sold ratio) in subsequent years, the gross profit amount is increased by the profit; Fixed assets: When there is no external sales in the current year, firstly, the gross profit amount will be reduced by the profit, and secondly, by the additional depreciation amount, the profit will be increased. Additional depreciation will be provided to increase profits in subsequent years;
The invested enterprise incurred excessive losses
cost method
×
equity method
Borrow: investment income Credit: Long-term equity investment - profit and loss adjustment Provision for impairment of long-term receivables Estimated liabilities
Cash dividends declared by the invested enterprise
cost method
Borrow: Dividends receivable Credit: Investment income
equity method
Borrow: Dividends receivable Credit: Long-term equity investment - profit and loss adjustment
Other comprehensive income and other changes in equity of the invested enterprise
cost method
×
equity method
Borrow: Long-term equity investment - other comprehensive income Credit: Other comprehensive income
Borrow: Long-term equity investment - other changes in equity changes Credit: Capital Reserves - Other Capital Reserves
Disposal and impairment of long-term equity investments
Dispose
Cost method disposal entries Debit: bank deposit Provision for impairment of long-term equity investments Loan: Long-term equity investment Investment income (can be borrowed or loaned)
Equity method disposal entries Debit: bank deposit Provision for impairment of long-term equity investments Credit: Long-term equity investment - investment cost ——Profit and loss adjustment (can be borrowed or loaned) ——Other comprehensive income (can be borrowed or loaned) ——Other changes in equity (can be borrowed or loaned) Investment income (can be borrowed or loaned)
Debit: Capital Reserve - Other Capital Reserve (carried forward proportionally or in full) Credit: Investment income or vice versa
Debit: other comprehensive income (carried forward proportionally or in full) Loans: investment income, etc. or vice versa
Impairment
If the measurement result of the recoverable amount of a long-term equity investment shows that the recoverable amount is lower than the book value, it means that the long-term equity investment has suffered impairment losses, and its book value should be written down to the recoverable amount. Borrow: Asset impairment loss Credit: Provision for impairment of long-term equity investments
Once the long-term equity investment impairment loss is recognized, it cannot be reversed in subsequent accounting periods.