How to do the relevant adjustment entries of the cost method to the equity method of the consolidate

Borrow: Long-term investment - profit and loss adjustment (the increase in undistributed profits and surplus reserves realized by the subsidiary after being invested and controlled by the parent company, the share held by the parent company).

Credit: Investment income (investment income of the parent company to the subsidiary in the current period = net profit of the subsidiary in the current period and shareholding of the parent company).

HNA Accounting Education answers for you:

1. The parent company's long-term equity investment in the subsidiaries included in the scope of consolidation shall be adjusted according to the equity method (only adjusted to the consolidated statements, so as to lay the foundation for the subsequent two consolidated offset entries. The parent company data in the consolidated financial statements are still presented according to the cost method).

Borrow: Long-term investment - profit and loss adjustment (the increase in undistributed profits and surplus reserves realized by the subsidiary after being invested and controlled by the parent company, the share held by the parent company).

Credit: Investment income (investment income of the parent company to the subsidiary in the current period = net profit of the subsidiary in the current period and shareholding of the parent company).

Undistributed profit at the beginning of the year (income from the parent company's investments in the subsidiary in previous years).

Borrow: Long-term equity investment - equity investment difference (the cumulative increase in capital reserve of a subsidiary after being invested and controlled by the parent company).

Credit: Capital Reserve.

2. The equity investment project of the parent company to the subsidiary is offset with the equity project of the owner of the subsidiary (the difference in the translation of foreign currency statements is not offset and is directly summarized):

Borrow: paid-in capital (share capital), capital reserve, surplus reserve, undistributed profit (number of subsidiaries in the statement).

Goodwill (the amount of long-term equity investment of the parent company that is greater than the amount of ownership equity in the subsidiary, according to the new standard, only positive goodwill, no negative goodwill).

Credit: Long-term equity investment (the amount of investment made by the parent company in the subsidiary).

Minority interests (share of net assets enjoyed by other shareholders of the subsidiary, = net assets of the subsidiary and equity shares of other shareholders).

3. The investment income of the parent company and other minority shareholders in the subsidiary in the current period, the undistributed profit at the beginning of the period of the subsidiary and the profit distribution item of the subsidiary in the current period and the undistributed profit at the end of the period are offset

Borrow: investment income (investment income of the parent company in the current period to the subsidiary, = net profit of the subsidiary in the current period and equity share held by the parent company) income of minority shareholders in the current period (investment income of other shareholders in the subsidiary in the current period, = net profit of the subsidiary in the current period and equity share held by other shareholders).

Profit distributed at the beginning and end of the period (the amount of profit distributed at the beginning and end of the year in the subsidiary's profit distribution statement).

Credit: Withdrawal of surplus reserve (amount of items in the subsidiary's profit distribution statement).

Distributions to owners or (shareholders) (item amounts in the subsidiary's profit distribution statement).

Undistributed profit (the amount of undistributed profit at the end of the period of the subsidiary).

This is generally the case for subsidiaries. Because there is no way to truly reflect the financial status, operating results, cash flow and so on of the company group under the cost method, it is necessary to look at the parent and subsidiary as a whole, so although the cost method is used for the daily accounting of the subsidiary, the equity method is used in the consolidated statements.

It can be seen that under the equity method, the long-term equity investment of the parent company truly reflects the proportion of the investee's net assets. Therefore, it is more reasonable to adjust to the consolidated statements of the equity method.

Subsidiaries not acquired under the same control shall be accounted for by the cost method, and shall be adjusted to the equity method when the consolidated statement is reported to Li Qijian, and the cost method may also be used for consolidation, but the consolidation result shall be consistent with the equity method consolidation result. That's what the general rule says.

The book value of the "long-term equity investment" account shall be adjusted according to the proportion of its equity in the investee enterprise and the changes in the net assets of the investee enterprise. When using the method of distressed liquidation, the net profit or loss obtained by the investment enterprise each year should be recorded as its own investment profit or loss in proportion to the investment equity, and expressed as the increase or decrease of investment. If it receives dividends from the invested enterprise (excluding ** dividends, the same below), the investment enterprise shall offset the book value of the investment account.

Summary. Because the company's year-end consolidated statements of the subsidiary's owner's equity and the parent company's long-term equity investment belong to internal transactions, need to be offset, only the long-term equity investment under the equity method is equal to the ownership equity of the subsidiary, so that it can be offset, the cost method only recognizes the long-term investment according to the receipt of dividends, which is not equivalent to enjoying the owner's equity of the subsidiary, which cannot be completely offset, and all of them must be adjusted to the equity method.

According to the requirements of the Accounting Standards for Business Enterprises, if an investment enterprise exercises control over the invested enterprise, it needs to use the cost method as the accounting treatment of daily individual statements. At the end of the period, the long-term equity investment needs to be recorded in the consolidated financial statements according to the equity method and adjusted retrospectively. The same control is the equity combination method, and the non-same control is the purchase method.

The difference is that the final adjustment entries for the same control require the restoration of retained earnings, in order to "integrated survival".

The impact of internal transactions such as the parent company's long-term equity investment in the subsidiary and the owner's equity of the subsidiary on individual financial statements is offset by the preparation of consolidated offsetting entries.

The offsetting entries are as follows:

Borrow: share capital (paid-up capital).

Capital reserve (adjusted amount).

Other comprehensive income.

Surplus reserve. Undistributed profit (adjusted amount).

Goodwill (debit difference).

Credit: Long-term equity investment (parent company).

Minority interests (ownership interests of subsidiaries and minority shareholders' investment shareholdings) If the problem is helpful to you, please give a thumbs up. Have a great day. Thank you!!

Why should the cost method of long-term equity investment be converted to the equity method in the consolidated statements?

Because the company's year-end consolidated statements of the subsidiary's ownership equity and the parent company's long-term equity investment early base capital belong to internal transactions, need to be offset, only the long-term equity investment under the Ming Ying equity method is equivalent to enjoying the ownership equity of the subsidiary, so that it can be offset, the cost method only recognizes the long-term investment according to the receipt of dividends, not equal to the ownership of the subsidiary, can not be completely offset, all to adjust Lu Huai into the equity method.

According to the requirements of the Accounting Standards for Business Enterprises, if an investment enterprise exercises control over the invested enterprise, it is necessary to use the cost including the material method as the accounting treatment of daily individual statements. At the end of the period, the long-term equity investment needs to be recorded in accordance with the equity method in the consolidated financial statements, and adjusted retrospectively. The same control is the equity combination method, and the non-same control is the purchase method.

The difference is that the final adjustment entries for the same control require the restoration of retained earnings, in order to "integrated survival".

Through the preparation of consolidated offsetting entries, the impact of internal transactions such as the parent company's long-term equity investment in the subsidiary and the owner's interest in the subsidiary's property Li Husi on individual financial statements is offset.

The offsetting entries are as follows:

Borrow: share capital (paid-up capital).

Capital reserve (adjusted amount).

Other comprehensive income.

Surplus reserve. Undistributed profit (adjusted amount).

Goodwill (debit difference).

Credit: Long-term equity investment (parent company).

Minority shareholders' interests (minority shareholders' investment and shareholding ratios of minority shareholders' equity in the company) If the problem has help for you, please give a like. Have a great day. Thank you!!

Only control uses the cost method, otherwise it is the equity method. The cost method is used for enterprises that already have control and is treated as their own business, and the equity method is used for enterprises without control and is treated as investment enterprises.

In the consolidated financial statements, the same caliber needs to be used for subsidiaries in different situations to reduce the room for profit manipulation. However, the international practice is to adopt the equity method, because through the cost method of accounting, the profit shown in the financial statements is lower than the equity method (if the profitability of the subsidiary is extremely high), so it has always been required to change the cost method to the equity method.

The Notice on Several Issues Concerning the Income Tax Treatment of Enterprises in Enterprise Restructuring Business (Cai Shui [2009] No. 59) stipulates that when an enterprise acquires equity, the tax basis of the equity acquired by the acquirer (i.e. the long-term equity investment in the subsidiary) shall be determined on the basis of fair value, which means that the long-term equity investment in the subsidiary is not different from its tax basis at the time of initial recognition, and at the level of consolidated financial statements, the long-term equity investment of the parent company in the subsidiary actually represents the assets and liabilities of the subsidiary. In other words, the assets and liabilities of the subsidiary are actually taxed at fair value at the level of consolidated financial statements, which is the same as in accounting and there is no temporary difference.

Therefore, the parent company does not need to recognize the deferred tax impact or income tax impact on the fixed asset and its depreciation of the subsidiary at the level of the consolidated financial statements.

Adjust the long-term equity investment in the subsidiary to the equity method:

1) For the share of the subsidiary's current net profit of the subsidiary, Yin Xiaochang borrows: long-term equity investment, credit: investment income.

According to the share of losses incurred by the subsidiary in the current period, reverse entries shall be made.

2) For the cash dividends or profits declared by the subsidiaries for the current period, borrow: investment income, credit: long-term equity investment.

3) For other changes in the owner's equity of the subsidiaries except net profit or loss, borrow: long-term equity investment, credit: capital reserve.

Or do the opposite.

If necessary, the conversion of the cost method to the equity method can effectively prevent the parent company from using its control over the subsidiary to manipulate the dividend distribution policy of the subsidiary, so as to affect the income level of the consolidated financial statements, so as to achieve the purpose of the parent company to freely adjust the financial statements under specific background conditions.

Through the equity method of accounting for long-term equity investment, the balance of the parent company's long-term equity investment faithfully reflects its share in the owner's equity of the subsidiary, and the long-term equity investment reflects the profits or losses of the investee that it should enjoy in real time, which fully reflects the original intention of the consolidated statements to truly reflect the financial status of the enterprise group, and avoids the phenomenon of distortion of financial information in the consolidated statements.

Individual Reports**

Borrow: bank deposits, credit: long-term equity investment, investment income, and the remaining 30% equity is regarded as the initial investment at the time when the equity method is used

Borrow: Long-term Equity Investment - Profit and Loss Adjustment, Other Comprehensive Income, Credit: Surplus Reserve, Profit Distribution - Undistributed Profit, Other Comprehensive Income, Consolidated Financial Statements Treatment of Split Chips:

Adjustment of the remaining equity to fair:

Borrow: long-term equity investment, loan: investment income.