Accounting treatment for the initial recognition of long term equity investments

Glad to have you with this question.

Judging from the proportion of shares acquired, the nature of the impact of Company C on Company D is a joint influence. Therefore, in the initial measurement of long-term equity investment, the fair value of the consideration paid + directly related expenses should be used as its cost.

Borrow: Long-term Equity Investment – Cost 1988

Credit: Bank Deposits 1988

Because Company C uses the equity method of accounting, it is necessary to consider two scenarios (1) and (2) next:

1) The fair value of Company D's identifiable net assets is RMB 72 million, and the corresponding possession of Company C is RMB 7,200*25%=1,800 (RMB 1,000).

In this case, 1988>1800, so there is no need to add the cost of long-term equity investment. The difference between 1988-1800 = 188 (10,000 yuan) is goodwill, which is reflected in individual statements with long-term equity investment.

2) The fair value of Company D's identifiable net assets is RMB 80 million, and the corresponding possession of Company C is RMB 8,000*25%=RMB 2,000 (RMB 10,000).

In this case, 2000>1988, so the cost of long-term equity investment should be added.

Borrow: Long-term equity investment – cost 12

Credit: Non-operating income 12

The initial investment cost is the value of the assets invested by the investing company. (This value is determined by situation, i.e., book value, fair value).

The recorded value of long-term equity investment refers to the share of the investee's net assets obtained by the investor. (This net asset is also determined on a case-by-case basis, i.e., fair value of net assets, book value of net assets).

Although they are not the same concept, in most cases the value of the two is the same, i.e. the initial investment cost = recorded value. This is the main reason why it is easy to get confused. There is only one case where the values are different:

Borrow: Long-term Equity Investment 1988

Credit: Bank Deposits 1988

Borrow: Long-term equity investment 2000

Credit: Bank Deposits 1988

Non-operating income 12

Hello, to put it simply: the initial investment cost is the value of the assets invested by the investment enterprise; The recorded value of long-term equity investment refers to the investor's share of the investee's net assets.

And their correlation is that in most cases the value of the two is the same, i.e. the initial investment cost = recorded value.

The initial investment cost refers to the amount of the long-term equity investment at the time of initial measurement: the initial investment cost of the business combination under the same control is the share of the book value of the owner's equity of the merged party on the date of the merger. The amount of the initial investment cost for a business combination not under common control and a non-business combination is the fair value of the consideration paid + the directly related taxes paid.

Under the equity method, the amount of the initial investment cost is the fair value of the consideration paid + the directly related taxes paid.

When the initial investment cost is less than the fair value of the investee's identifiable net assets that should be enjoyed at the time of acquisition of the investment, the initial investment cost should be adjusted first, and then the adjusted amount should be recorded as the recorded value of the long-term equity investment. Its recorded value = initial investment cost + difference between the initial investment cost and the fair value of the investee's identifiable net assets (i.e., the amount included in non-operating income).

The recorded value of long-term equity investment refers to the recorded amount of long-term equity investment account, which generally refers to the amount adjusted for the initial investment cost, and the initial investment cost and the initial measurement amount of long-term equity investment under the cost method (under the same control and not under the same control) are the same.

1. Cost method accounting:

A long-term equity investment in which an enterprise can exercise control over the investee – a parent subsidiary.

The enterprise does not have control, joint control or significant influence over the investee, and does not have a long-term equity investment in an active market and its fair value cannot be reliably measured.

2. Equity method accounting:

A long-term equity investment in which the enterprise has common control over the investee - a joint venture.

A long-term equity investment in which the enterprise has a significant impact on the investee - an associated company.

Dear: I am glad to answer for you: the initial cost and recorded value of long-term equity investment Generally speaking, the recorded value of long-term equity investment is its initial investment cost, and there is only one special situation, that is, under the equity method, when the initial investment cost is less than the share of the fair value of the investee's identifiable net assets that should be enjoyed when the investment is obtained, the initial investment cost should be adjusted first, and then used as the recorded value of long-term equity investment.

For long-term equity investments accounted for using the equity method, the initial investment cost of the long-term equity investment and the amount of the recorded value may or may not be equal: the initial investment cost is the fair value of the assets paid by the investment enterprise plus relevant taxes and fees, and the recorded value is the amount credited to the long-term equity investment account on the day of investment. When the initial investment cost is greater than the fair value share of the investee's identifiable net assets at the time of investment, the recorded value is equal to the initial investment cost, and the difference is goodwill, which is not recognized separately; If the initial investment cost is less than the fair value share of the investee's identifiable net assets at the time of investment, the share shall be regarded as the recorded value of the long-term equity investment, and the difference shall be recognized as non-operating income.

General search and sale.

The premise is **, not bonds.

1.Control (50% shareholding).

2.Joint control (stake = 50%)

3.Significant impact (20-50% of the shares).

The above 3 cases.

It can be recognized as a long-term equity investment.

4.(20% of the shares).

Purpose of the transaction. It can be recognized as a tradable financial asset.

Non-Trading Purposes.

It can be recognized as an investment in other equity instruments.

Special circumstances. General Principles:

Substance over form (economic substance over legal form).

1.The industrial and commercial registration has not been changed.

Although it has not been registered, it has been able to control, jointly control, and has significant influence, and is recognized as a long-term equity investment.

2.No directors were appointed.

Although no directors have been appointed, it has been able to control, jointly control, and have significant influence, and it is recognized as a long-term equity investment.

3.Unpaid.

Although the purchase of equity has not been paid, it has been able to control, jointly controlled, significantly influenced, or automatically acquired equity on a certain date as agreed in the contract, and it is recognized as a long-term equity investment.

The above 3 cases.

It can be recognized as a long-term equity investment.

4.Investment entities.

Even if a venture capital company achieves control, joint control, and significant influence, it does not recognize long-term equity investments, but recognizes transactional financial assets. Purpose of the transaction.

Explanation of terms. 1.Control (Subsidiary Leak Forest):

Have power, can participate in meetings, and can share dividends.

2.Joint control (joint venture):

Joint control is not control, equity method.

3.Significant impact (associates).

Summary. Hello, dear, I am very glad for your question, the accounting treatment of the initial acquisition of long-term equity investment under the same control, to help you inquire, as follows: 1. If the merging party pays cash, transfers non-cash assets or assumes debts as the merger consideration, it shall take the share of the book value of the owner's equity of the merged party as the cost on the merger date, and the difference between the cost and the cash paid shall be recorded as capital reserve.

2. If the issuance of equity securities is used as the consideration for the merger, the total par value of the issued shares shall be used as the share of the book value of the owner's equity of the merged party as the cost on the merger date, and the difference between the cost and the total par value of the issued shares shall be recorded as capital reserve.

Hello, dear, I am very glad for your question, the accounting treatment of the initial acquisition of long-term equity investment under the same control, to help you inquire, as follows: 1. If the merging party pays cash, transfers non-cash assets or assumes debts as the consideration for the merger, it shall take the share of the book value of the owner's equity of the merged party as the cost on the merger date, and the difference between the cost and the cash paid shall be recorded as the capital reserve. 2. If the issuance of equity securities is used as the consideration for the merger, the total par value of the issued shares shall be used as the share of the book value of the owner's equity of the merged party as the cost on the merger date, and the difference between the cost and the total par value of the issued shares shall be recorded as the capital reserve.

3. If the company adjusts the book value of its assets and liabilities according to the value of the assets and liabilities determined at the time of restructuring, the merging party shall take the share of the net assets of the subsidiary as the initial cost of long-term equity investment and capital resistance. 4. If the consolidated party prepares its own consolidated financial statements, the book value of the consolidated party's owner's equity shall be determined on the basis of its consolidated financial statements.

Some enterprises will choose to obtain the shares of the investee through investment, so as to obtain a certain amount of investment income, so when the enterprise obtains long-term equity investment, how should the relevant accounting treatment be done?

Accounting entries for long-term equity investments are obtained.

Under the cost method: at the time of purchase, borrow: long-term equity investment.

Credit: Bank deposits.

When cash dividends or profits are recognized as investment income, they are borrowed: bank deposits.

Credit: Investment income.

Under the equity method: Yunhuai Rock.

At the time of purchase, borrow: long-term equity investment.

Credit: Bank deposits.

The portion of cash dividends or profits that should be enjoyed by the company.

Borrow: Dividends receivable.

Credit: Investment income.

When cash dividends or profits are received, borrow: bank deposits.

Credit: Dividends receivable.

The share of net profit or net loss, adjusting the book balance of long-term equity investments.

Borrow: Long-term equity investment.

Credit: Investment income.

When the cash dividends or profits are shared, the bank deposit is borrowed.

Credit: Dividends receivable.

What is a long-term equity investment?

Long-term equity investment refers to the acquisition of shares of the investee through investment. An enterprise's equity investment in other entities is usually regarded as long-term holding, and through equity investment to achieve control over the investee, or exert significant influence on the investee, or to establish a close relationship with the investee, so as to diversify the operational risk.

What is the return on investment?

Investment income refers to the income obtained by the enterprise from foreign investment (the loss incurred is negative), such as the dividend income obtained by the enterprise from foreign investment, the interest income of bonds, and the profit shared by joint operation with other units.

What is Interest Receivable?

Interest receivable refers to the interest receivable included in the actual price paid for short-term bond investment, which has reached the interest payment period but has not yet been received. This part of the interest receivable is not included in the initial investment cost of short-term bond investment. However, if the actual price paid includes the interest on the bonds that have not yet matured, it will be included in the initial investment cost of the short-term bond investment that does not need to be accounted for separately.

The initial recognition amount for a long-term equity investment is that the long-term equity investment should be determined at the cost at the time of acquisition. The cost of acquiring a long-term equity investment refers to the full price paid when acquiring a long-term equity investment, or the fair value of non-cash assets or the fair value of the long-term equity investment, including taxes, fees and other related expenses, excluding the appraisal, audit, consulting and other expenses incurred to obtain the long-term equity investment.

The acquisition cost of long-term equity investment shall be determined separately according to the following circumstances:

1) For long-term equity investment obtained by paying cash, the investment cost shall be based on the full price paid, including taxes, handling fees and other related expenses. For example, if enterprise A buys enterprise B for long-term prospects, pays the purchase of ** yuan, and pays taxes, handling fees and other related expenses of 40,000 yuan, and the investment cost of enterprise A to obtain the equity of enterprise B is yuan. For long-term equity investment obtained by an enterprise, if the actual price paid includes cash dividends that have been declared but not yet received, they should be accounted for separately as receivables.

2) Long-term equity investments obtained by giving up non-cash assets. Non-cash assets refer to assets other than cash, bank deposits, other monetary funds, and cash equivalents, including various inventories, fixed assets, intangible assets, etc. (excluding equity, the same below), but the expenses to be amortized cannot be used as non-cash assets for investment. Fair value here refers to the amount of money that two parties to a transaction who are familiar with the situation voluntarily exchange assets or settle debts in an arm's length transaction.

Fair value is determined according to the following principles:

In the case of investments in non-cash assets, the fair value is the value of the non-cash assets that are waived through appraisal.

If the non-cash assets are not appraised in accordance with the regulations, the fair value shall be determined as follows: if there is an active market for the asset, the market value of the asset shall be its fair value; If there is no active market for the asset but there is an active market for an asset similar to the asset, the fair value of the asset shall be determined by reference to the market price of the relevant similar asset; If there is no active market for the asset and assets similar to the asset, the fair value of the asset is determined by the present value of the future cash flows it can generate at a discount rate at an appropriate discount rate.

If the fair value of the equity investment obtained is clearer than the fair value of the non-cash assets abandoned, when determining the investment cost by the fair value of the equity investment obtained, if the investee is a public listed company, the fair value of the equity is the total market value of the corresponding shares; If the investee is another enterprise, the fair value of the equity is determined according to the appraisal confirmation price or the agreed price between the two parties.