Accounting for Subsidiaries under the Cost Method and the Equity Method - AcSB

Date recorded:

At its meeting on February 11, 2015, the AcSB discussed this project, including (i) reconfirming its decision from the 2012 Annual Improvements project that the cost of a subsidiary at the date of acquisition should be determined in the same manner, regardless of how the subsidiary is accounted for subsequently. Consequently, the determination of the initial carrying amount of a subsidiary should be consistent with Section 1582, Business Combinations, when the subsidiary is subsequently accounted for using the cost method in accordance with Section 1591, Subsidiaries. The AcSB also decided that the previously held investment in the acquiree should not be remeasured in a step acquisition and that bargain purchase gains should not be recognized; (ii) deciding that when an entity increases its investment in an investee that is accounted for using the cost method, the new cost should be the sum of the carrying amount of the previously owned investment and the cost of the incremental investment as described above. The AcSB also decided that when a decrease in ownership occurs, the retained interest should be a pro rata portion of the carrying amount of the investment prior to the reduction in interest. The resulting gain or loss should be recognized in net income; and (iii) deciding not to develop guidance on the use of the equity method when accounting for subsidiaries as part of the current project.

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