What is equity accounting?Is this allowed with IFRS?
What the difference between equity accounting and treating a JV as if its a subsidiary and showing minorit interest. Is it allowed to treat a JV as if its a subsidiary and show 50% minority interest.
Other - Business & Finance - 2 Answers
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Answer 1 :
Equity accounting is a method of accounting whereby a corporation will document a portion of the undistributed profit for an affiliated company in which they own a position. The arrival of 2005 has herald a new reality for companies grappling with IFRS conversion, yes the change to IFRS may affect a lot more than financial statements.
Answer 2 :
Equity accounting is usually used for associates and joint ventures. When you have significant influence over an investee, that investee is your associate, and you have to apply equity accounting. Not only is it allowed with IFRS, it is required under IAS 28. If your interest is 50%, you need to look at the qualitative criteria to ascertain if the investee is an associated company or a joint venture. If you decide that it's a JV, you can choose to account for it under equity accounting or proportionate consolidation. To put it very simplistically, Control - subsidiary (IAS 27) Significant influence not amounting to control - associate (IAS 28) Joint control - joint venture (IAS 31) For the details, read the summaries at the links.
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