Can the follow up measurement and conversion of long term equity investment help me summarize? I lea

Summary. Long-term equity investment is a kind of financial asset that an enterprise invests in the target unit based on its investment strategy, and at the same time forms the equity of the target unit. Long-term equity investment occupies an important position in the investment of enterprises.

In the accounting of long-term equity investment, the conversion of the cost method and the equity method is a difficult and key point, and if the conversion of the subsequent measurement method of long-term equity investment cannot be correctly handled, it may become a means for enterprises to manipulate profits.

Long-term equity investment is a kind of financial asset that the enterprise invests in the target unit based on its investment strategy, and at the same time forms the equity of the target unit. Long-term equity investment occupies an important position in the investment of enterprises. In the accounting of long-term equity investment, the conversion of the cost method and the equity method is a difficult and key point, and if the conversion of the subsequent measurement method of long-term equity investment cannot be correctly handled, it may become a means for enterprises to manipulate profits.

1. Change from "control" to "joint control or significant influence".

The subsequent measurement of long-term equity investment is changed from the cost method to the equity method.

2. Changed from "joint control or significant impact" to "no longer constitutes control, joint control, and significant impact".

The long-term equity investment accounted for by the equity method is subsequently converted into "trading financial assets" or "other equity instrument investment".

3. From "control" to "no longer constitute control, joint control, and significant influence".

The long-term equity investment accounted for by the cost method is subsequently converted into "trading financial assets" or "other equity instrument investment".

4. Shift from "joint control or significant influence" to "control".

The subsequent measurement of long-term equity investment has been changed from the equity method to the cost method.

5. Change from "no longer constitutes control, joint control, or significant influence" to "joint control or significant influence".

From "trading financial assets" or "other equity instrument investments" to long-term equity investments that are subsequently measured and accounted for by the equity method.

6. Change from "no longer constitutes control, joint control, and significant impact" to "control".

From "trading financial assets" or "other equity instrument investments" to long-term equity investments that are subsequently measured and accounted for using the cost method.

1. What is the scope of application of the long-term equity investment cost method?

Netizen question: Hello lawyer, I want to ask, I have understood the basic content of the scope of application of the equity method of long-term equity investment, but I still don't know enough about the scope of application of a cost method, so what is the scope of application of the cost method of long-term equity investment?

Lawyer: 1. The application of the cost method is an enterprise or subsidiary that can exercise control (i.e., more than 50 shares).

2. The cost method can be simply understood as a cash system, and I only recognize the investment income when the invested enterprise travel shipping industry declares dividends, regardless of whether it is a profit or a loss. The carrying amount of long-term equity investments under the cost method is generally not adjusted unless the investment is increased or decreased.

3. Long-term equity investment in which the enterprise can exercise control over the investee. That is, the long-term equity investment of the enterprise in the subsidiary. The long-term equity investment of an enterprise in a subsidiary shall be accounted for by the cost method, and adjusted according to the equity method when preparing the consolidated financial statements.

Holding period of long-term equity investment:1.During the holding period, the investee realizes net profit.

Borrow: Long-term Equity Investment - Profit and Loss Adjustment (Net Profit Shareholding Ratio) Loan: Investment Income (Net Profit Shareholding Ratio).

2.During the holding period, the investee incurred a net loss.

Borrow: Investment income (net loss, shareholding ratio).

Credit: Long-term Equity Investment - Profit and Loss Adjustment (Net Loss, Shareholding Ratio) <>

1. Adjustment of initial investment cost.

If the initial investment cost of a long-term equity investment is greater than the fair value share of the investee's identifiable net assets at the time of investment, the initial investment cost of the long-term equity investment shall not be adjusted; If the initial investment cost of a long-term equity investment is less than the fair value share of the invested's single-key identifiable net assets at the time of investment, the difference shall be included in the profit or loss of the current judgment, and the cost of the long-term equity investment shall be adjusted.

2. Recognition of investment profit and loss.

After the investment enterprise obtains the long-term equity investment, it shall recognize the investment profit or loss and adjust the book value of the long-term equity investment according to the share of the net profit or loss realized by the investee that it should enjoy or share.

The main methods for the follow-up measurement of long-term equity investment are generally divided into the cost method and the equity method.

1. Under the cost method, when the investee declares the distribution of cash dividends or profits during the holding period of long-term equity investment, the investment enterprise shall recognize the current investment income according to its share, and the "dividend receivable" account shall be debited and the "investment income" account shall be credited.

2. Under the equity method, during the period of holding long-term equity investment, the investment enterprise shall debit the account of "long-term equity investment - adjustment of profit or loss" and credit the account of "investment income" according to the share of the net profit realized by the investee (calculated on the basis of the fair value of the identifiable net assets of the investee at the time of acquisition of the investment).

The subsequent measurement methods of long-term equity investment are divided into cost method and equity method, and the specific accounting methods are as follows:

Under the cost method, when the investee declares the distribution of cash dividends or no profits during the holding period of long-term equity investment, the investment enterprise shall recognize the share as the current investment income, and the "dividends receivable" account will be debited and the "investment income" account will be credited.

Under the equity method, during the period of holding long-term equity investment, the investment enterprise shall debit the account of "long-term equity investment - profit and loss adjustment" and credit the account of "investment income" according to the share of the net profit realized by the investee (calculated on the basis of the fair value of the identifiable net assets of the investee at the time of acquisition of the investment).

The net loss incurred by the investee shall be reversed, and the "investment income" account shall be debited and the "long-term equity investment - profit and loss adjustment" account shall be credited, but the carrying amount of the "long-term equity investment" account shall be written down to zero. For investment losses that need to be borne by the investee, the carrying amount of other "long-term receivables" that constitute net investment in the investee shall be written down to zero; In addition to the losses that have been recognized in accordance with the above steps, the losses to be borne in accordance with the investment contract or agreement are recognized as estimated liabilities. In addition to the above-mentioned circumstances, if the loss of the investee is not confirmed, it shall be registered in the memorandum book.

If the investee that has incurred a loss realizes a net profit in the future, it shall be treated in the reverse order of the above-mentioned trousers.

During the period of holding long-term equity investment, the investment enterprise Hu Jiepei shall debit the account of "long-term equity investment - other comprehensive income" and credit the account of "other comprehensive income" according to the share of other comprehensive income realized by the investee. The "other comprehensive income" mentioned here refers to the gains and losses that are not recognized in the profit or loss for the current period in accordance with other accounting standards.

For other changes in the owner's equity of the investee other than net profit or loss, other comprehensive income and profit distribution, the investment enterprise shall calculate the share it shall enjoy according to the shareholding ratio, and debit or credit the account of "long-term equity investment - changes in other equity" and credit or debit the account of "capital reserve - other capital reserve".

1. Cost method of long-term equity investment.

1) The definition of the cost method and its scope of application.

The cost method refers to the method of valuing investments at cost.

Long-term equity investments over which the investor is able to exercise control over the investee shall be accounted for using the cost method.

Control means that the investor has power over the investee, enjoys variable returns by participating in the investee's purely physical activities, and has the ability to use its power over the investee to influence the amount of its returns.

2) Cost method accounting.

1. The "Long-term Equity Investment" account reflects the cost at the time of acquisition.

2. The investee declares the payment of cash dividends.

Borrow: Dividends receivable (enjoy the cash dividends or profits declared by the investee).

Credit: Investment income.

3. Provision for impairment.

Borrow: Asset impairment loss.

Credit: Long-term equity investment to make impairment provisions.

2. Equity method for long-term equity investment.

1) The definition of the equity method and its scope of application.

The equity method refers to the method of adjusting the book value of an investment during the holding period according to the changes in the share of the investee's owner's equity enjoyed by the investment enterprise after the investment is measured at the initial investment cost.

Scope of application: joint ventures under joint control; Significant impact associates.

2) Equity method accounting.

Subject setting: long-term equity investment - investment cost (investment time).

Profit and loss adjustment (changes in the net profit or loss and profit distribution of the investee during the holding period).

Other comprehensive income (change in other comprehensive income after investment).

Changes in other equity (other after investment).

1) During the holding period of investment, if the investee prepares consolidated financial statements, it shall be accounted for on the basis of the amount attributable to the investee in the net profit, other comprehensive income and other changes in owners' equity in the consolidated financial statements.

2) Under the equity method accounting, long-term equity investment represents the share of the net assets of the investee, and the investment income represents the share of the net profit and loss of the investee.