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ADVANCE ACCOUNTING

STOCK INVESTMENT

Muflikh Zenith
Andang Juandi
Reffi Sulaeman
Mohammad Fachrizal
Ramadhi Ali Kurnama

START

Definitions

Level Of
Influence

Accounting Reflects Economics

Equity Method

Ability to
Influence or
Control

Concept Of Cost and


Equity Method

Goodwill
Impairment

Fair Value /
Cost Method

Applying the
Equity Method

Definitions

Stock Investment
Kepemilikan atau pembelian saham-saham
perusahaan oleh suatu perusahaan lain atau
perorangan dengan tujuan untuk memperoleh
pendapatan tambahan diluar pendapatan dari usaha
pokoknya.

Level Of Influence
FAIR VALUE
METHOD

<20%

EQUITY METHOD

CONSOLIDATION

20-50%

>50%

Concept Of Cost and Equity


Method
Metode Cost

Metode Equity

Investasi dalam
saham biasa dicatat
pada biayanya, dan
dividen dari laba
berikutnya
dilaporkan sebagai
pendapatan dividen.

Investasi dicatat
pada biaya
perolehan dan
disesuaikan dengan
keuntungan dan
kerugian dan
dividen.

Fair Value Method


At acquisition: Pilzner buys 2,000 shares of Sud for
$100,000.
Investment in Sud
Cash

100,000
100,000

Pilzner receives $4,000 in dividends from Sud.

Cash
Dividend income

4,000
4,000

Fair Value Method, at Year-end


Reduce dividend income recognized, if needed
Dividend income
Investment in Sud

1,000
1,000

If Pilzner determines that cumulative dividends exceed its


cumulative share of income by $1,000.
Adjust investment to fair value
Allowance to adjust available-forsale securities to fair value
Other comprehensive income

21,000
21,000

If fair value of increases to $120,000 and the Investment in


Sud account balance is $99,000.
2-7

Equity Method
At acquisition: Pilzner buys 2,000 shares of Sud
for $100,000.
Investment in Sud
100,000
Cash
100,000
Pilzner receives $4,000 in dividends from Sud.
Cash
Investment in Sud

4,000
4,000

2-8

Equity Method, at Year-end


Pilzner determines that its share of Sud's income is
$5,000.

Cash
Investment in Sud

4,000
4,000

The ending balance in the Investment in Sud is:


$100,000 cost - $4,000 dividends + $5,000 income
= $101,000.

Acquisition Cost > FV net assets


FV net assets > BV net assets
Payne acquires 30% of Sloan for $5,000. Sloan's identifiable net
assets (assets less liabilities) are:
Fair value: A L = $18,800 - $2,800 = $16,000.
Book value: A L = E = $15,000 - $3,000 = $12,000
The $4,000 difference ($16,000 - $12,000) is due to:
$1,000 undervalued inventories sold this year,
$200 overvalued other current assets used this year,
$3,000 undervalued equipment with a life of 20 years, and
$200 overvalued notes payable due in 5 years.

$5,000 > 30%(16,000) > 30%(12,000)


$5,000 > $4,800 > $3,600
2-10

Acquisition of Sloan Stock


At acquisition, Payne pays $2,000 cash and issues common
stock with a fair value of $3,000 and par value of $2,000.
Payne also pays $50 to register the securities and $100 in
consulting fees.
Investment in Sloan
5,000
Cash
Common stock, at par
Additional paid in capital

Additional paid in capital


Investment expense
Cash

2,000
2,000
1,000

50
100
150

Cost/Book Value Assignment


Cost of acquisition
Less 30% book value = 30%(12,000)
Excess of cost over book value
Assigned to:
Inventories 30%(+1,000)
Other curr. assets 30%(-200)
Equipment 30%(+3,000)
Note payable 30%(+200)
Goodwill (to balance)
Total

Amount
$300
(60)
900
60
200
$1,400

$5,000
3,600
$1,400
Amortization
1st year
1st year
20 years
5 years
None

Dividends and Income


Payne receives $300 dividends from Sloan.
Cash
Investment in Sloan

300
300

Sloan reports net income of $900.


Payne will recognize its share (30%) of Sloan's
income, but will adjust it for amortization of the
differences between book and fair values.

Amortization and Investment Income


Cost/book value
differences:
Inventories
Other curr. Assets
Equipment
Note payable
Goodwill

Total

Initial
amoun
t

1st year
Unamortized
amort. excess at year-end

$300
(60)

($300)
60

$0
0

900

(45)

855

60

(12)

48

200

200

$1,400

($297)

$1,103

Investment income is 30% of Sloan's net income amortization


30%($3,000) $297 = $603.

Year-end Entry & Balance


Record the investment income

Investment in Sloan
Income from Sloan

603

The ending balance in the investment account is:

Cost dividends + investment income


5,000 300 + 603
= 5,303.

603

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