Accounting methods for long term equity investment and how to choose

Long-term equity investments should be accounted for by the cost method or the equity method according to different circumstances.

1.The long-term equity investment of the investment enterprise in the subsidiary is subject to the cost method of accounting, and the adjustment is made according to the equity method when preparing the consolidated financial statements.

2.Long-term equity investments that do not have common control or significant influence over the investee, and have no ** in an active market, and whose fair value cannot be reliably measured, are subject to cost method accounting.

3.The equity method applies to jointly controlled joint ventures and associated enterprises with significant influence.

When the cost method is adopted, the carrying amount of a long-term equity investment should generally remain the same, except for additional or recouped investments. The profits or cash dividends declared by the investee shall be recognized as investment income for the current period.

When the equity method is adopted, after the equity investment is obtained, the investment enterprise shall adjust the book value of the investment according to the share of the net profit realized or the net loss incurred by the investee in the current year (except for the net profit that is not attributable to the investment enterprise as stipulated by laws and regulations or the articles of association), and recognize it as the investment profit or loss for the current period. The investment enterprise calculates the portion of the distribution according to the profits or cash dividends declared by the investee, and reduces the book value of the investment accordingly.

It is divided into cost method and equity method accounting.

The difference is that the equity method can have a significant impact on the investee company's decision-making, of course, the precondition must meet the non-fair value measurement of its equity investment

Under the cost method, the determination of cost shall not include the provision for impairment of "impairment provision for long-term equity investment" and the issuance of dividends and "investment income" based on declared dividends

Under the equity method, if the initial investment cost is less than the fair value share of identifiable net assets, the difference shall be debited from the "long-term equity investment - cost" and credited with "non-operating income".

Profit and loss adjustment: Profit and loss debited Long-term equity investment - profit and loss adjustment Credit investment income Loss incurred Reverse write-up.

Changes in other equity Debit "Long-term equity investment - change in other equity" debit credit "Capital reserve - other capital reserve".

When disposing of it, remember to make adjustments for profit and loss, other capital reserves and investment income.

There are two main categories:

1. Long-term equity investment in the formation of a holding merger.

Among them, the long-term equity investment that forms a holding merger is subdivided into two categories.

1.Long-term equity investments that form a controlling merger under the same control.

2.Formation of long-term equity investments obtained through the merger of holding companies not under the same control.

2. Holding merger without forming a long-term equity investment.

Legal analysis: The accounting methods for long-term equity investment are: first, cost method; The second is the equity method.

Legal basis: Article 28 of the Company Law of the People's Republic of China stipulates that shareholders shall pay in full and on time the amount of capital contributions subscribed by them as stipulated in the articles of association.

If the shareholder makes a capital contribution in currency, the full amount of the monetary contribution shall be deposited into the material account opened by the limited liability company in a bank; Where a person makes a capital contribution with non-monetary property, he shall go through the formalities for the transfer of his property rights in accordance with law. If a shareholder fails to pay the capital contribution in accordance with the provisions of the preceding paragraph, in addition to paying the full amount to the company, it shall also bear the liability for breach of contract to the shareholder who has paid the capital contribution in full on time.

There are two accounting methods for long-term equity investment: one is the cost method and the other is the equity method.

The scope of long-term equity investments accounted for by the cost method.

1. Long-term equity investment in which the enterprise can exercise control over the investee. The long-term equity investment of an enterprise in a subsidiary shall be adopted.

Accounting is based on the cost method, and adjustments are made according to the equity method when preparing the consolidated financial statements.

2. The enterprise does not have control, copper control or significant influence on the investee, and has no control or fairness in the active market.

Long-term equity investments whose value cannot be reliably measured.

The scope of long-term equity investments accounted for by the equity method.

When the enterprise has joint control or significant influence over the investee, the long-term equity investment shall be accounted for by the equity method.

1. Long-term equity investment in which the enterprise has common control over the investee.

2. Long-term equity investment of the enterprise with significant influence on the investee.

Introduction to Equity Investment.

Equity investment is usually for long-term (at least one year) holding a company's ** or long-term investment in a company, in order to achieve control of the content of the equity investment investee, or exert significant influence on the investee, or in order to establish a close relationship with the investee, in order to diversify the purpose of business risks.

The accounting methods for long-term equity investment include the cost method and the equity method.

The investment unit can exercise control over the investee unit and adopt the cost method.

The control mentioned here does not necessarily mean that the controlling interest is more than 50%, and the principle of substance over form is adopted. The equity method is adopted for the investment entity to exercise joint control or significant influence over the investee. It can also be understood like this:

The cost method is used to account for the things of one's own home, and the equity method is used to account for things that are not one's own home but are related to oneself.

Risks and benefits coexist. Obtain financial benefits and take corresponding risks.

The ultimate goal of long-term equity investment is to obtain greater economic benefits, which can be obtained through the sharing of profits or dividends, and can also be obtained through other means, such as the products produced by the investee unit are smoldering for the raw materials required for the production of the investment enterprise, and the raw materials fluctuate greatly in the market and cannot be guaranteed.