Equity method.
However, before talking about the equity method, we must first talk about the adjustment of the initial investment cost.
For the initial investment cost of the joint venture, you should remember that the fair value of the consideration paid is used to measure it here (Reference article: Why is long-term equity investment so difficult to learn?). It stands to reason that the record is over, so why is there one more adjustment?
Textbook requirements,When the initial investment cost of the long-term investment is less than the fair value share of the investee's identifiable net assets, the investment cost of the long-term investment should be adjusted and included in the non-operating income.
Borrow: Long-term equity investment - investment cost.
Credit: Non-operating income.
what the **
What about the good historical costing method?
How much money I spent on this asset, and how much it cost to record, is a no-brainer!
Why adjust?
Are you too idle or do you think I'm too idle?
There are always accidents in the world, but there are many accidents in CPA accounting textbooks.
Generally speaking, the purchase of something will not affect the profit or loss, whether it is expensive or cheap, it is directly included in the balance sheet with the consideration paid, and will not affect the profit;
It will only affect the profit and loss when it is a thing, and the amount that is included in the income statement will be affected by selling at a loss and selling to earn.
So why is the long vote a blatant provocation of this rule?
Because the amount is too large, it is often hundreds of millions, so big that people can't ignore the matter of buying cheap.
You buy a commodity, the fair value of the commodity is 100 yuan, you wear out your three-inch incorruptible tongue, 98 yuan to take, you let the accounting record:
Borrow: 100 yuan for inventory goods.
Credit: Bank deposit 98 yuan.
Non-operating income is 2 yuan.
The accountant will just sneer and recommend you a mental hospital of your choice.
But long-term investment, 100 million, 100 billion, 100 billion, are all possible.
A big problem brought about by the large amount of money is liquidity.
The more expensive something is, the worse the circulation.
You sell a mobile phone holder on Xianyu, which may have just been hung up in the morning and photographed in the afternoon;
You are ready to ** 20% of the equity of the company you worked hard to create, with a valuation of 1 billion, and you may not be able to find a suitable receiver for 5 years.
Time is the core that breaks down the seller's psychological defense**.
Especially when the seller is in a hurry to ship or is in a hurry to lack money, if you don't cut a penny, you are sorry for the wallet that has followed you for decades.
At this time, it may appear that the ** you pay is less than the fair value of the investee company.
People are worth 1 billion, and you spend 800 million to get it.
The 200 million is that you took advantage of, and the amount is too large to ignore.
If it is not adjusted, the book will record the value of this long-term investment of 800 million, then the accounting information we provide is a bit distorted.
It's one thing to stick to the dogma of "historical costs", it's another to provide more useful information.
Accounting records are a tug-of-war between the two.
Lao Tie asked, what if it is expensive?
For example, 20% of the fair value of the investee's identifiable net assets is worth 1 billion, and I spent 1.2 billion to get it.
Sorry, I don't do anything to buy expensive.
If you buy expensive, you will buy expensive.
It's normal to buy expensive.
This is because the fair value of the investee's identifiable net assets does not reflect its true value.
If this company has an office building, 100 desks, and 200 chairs, is the value of this company the fair value of 1 office building + 100 desks + 200 chairs?
Accounting can only record those resources that can be seen and cannot be seen, such as key customers, channels, talents, and brand influence.
Although these resources are virtual, they constitute the core competitiveness of a company.
Therefore, in most cases, the valuation of the company will be higher than the fair value of the identifiable net assets.
If you spend 1.2 billion to buy a net asset with a fair value of 1 billion, this is not called buying expensive, this is called a reasonable bid that takes into account various factors.
It's normal to buy expensive, but it's not normal to buy cheap.
It may also be because it is not normal to buy cheaply, so it should be recorded as "non-operating income".
Lao Tie asked again, why don't people adjust the initial investment cost with the cost method?
Hee-hee, it's not that it doesn't adjust, but it's all hiddenConsolidated Statementsin the ass.
At that time, CPAER was too young to know the unexpected simplicity of the CPA textbook, and he would return it ten times and a hundred times later without accident.