Investment in Equity Securities

Non Strategic Investment Strategic Investment

Investment in < 20% of Investment in >= 20% of

Record Report
Shares Shares

Investor Records and Significant Influence Equity

>=20% <50% Equity Method
Reports the investment Investment Method

Fair Value Through Profit

and Loss Method FVTPL Joint Control Investment =50% Equity Equity Method
Method
Method

Fair Value Through Other Cost

Method or
Comprehensive Income Control Investment >50% Consolidation
the Equity
Method FVTOCI Method Method
 Investor =
Investor
Investee =
Associate

Joint owners

Investor = Parent
Investee =
Subsidiary
Illustration on Page 59 Jenstar and Safebuy DR CR
Fair Value Through Profit and Loss (FVTPL Method)
In the books of the Investor - Jenstar
1. To record the investment
Jan 1, Year 5 Investment is Safebuy A/C DR 95,000
Cash A/C CR 95,000
(Purchase of 10% of the Shares of Safebuy)

2. To record dividend received from the Investee (Safebuy)

Safebuy declared dividends of $80,000
Jenstar owns 10% of Safebuy ( Jenstar invested in 10% of the shares of Safebuy)
Jenstar's share of the dividend that Safebuy declared would be 10% of $80,000 or $8,000
Dec 31, Year 5 Cash A/C DR 8,000
Investment Income (Dividend Income) CR 8,000
(To record dividends received from Safebuy)
3. To revalue the investment to Market Value at Year End
Dec 31, Year 5 Investment in Safebuy Dr 3,000
Unrealized Gain (reported in Net Income) 3,000
(To revalue investment to Market Value (fair value) at Year End

There is no entry recorded for Investors share in the income of the investee
Eventhough Safebuy earned a net income of $100,000 - Jenstar will not record Jenstar's share
of Safebuy's net income under the FVTPL Method.
Account balances in Jenstar's book as at Dec 31, Year 5
Investment in Safebuy (Asset account) 95, 000+3,000 = 98,000 Reported in the BS under Current Assets
Investment Income (Dividend Income ) 8000
Unrealized Gain on revaluation 3000 11,000 Reported in Income Statement Year 5

Jan 10, Year 6 Cash A/C DR 99,000

Investment in Safebuy 98,000
Realized Gain on Sale of Investment in Safebuy 1,000
(Being sale of investment in Safebuy
 Fair Value Through Other Comprehensive Income (FVTOCI Method)
In the books of the Investor - Jenstar
1. To record the investment
Jan 1, Year 5 Investment is Safebuy A/C DR 95,000
Cash A/C CR
(Purchase of 10% of the Shares of Safebuy)

2. To record dividend received from the Investee (Safebuy)

Safebuy declared dividends of $80,000
Jenstar owns 10% of Safebuy ( Jenstar invested in 10% of the shares of Safebuy)
Jenstar's share of the dividend that Safebuy declared would be 10% of $80,000 or $8,000
Dec 31, Year 5 Cash A/C DR 8,000
Investment Income (Dividend Income) CR
(To record dividends received from Safebuy)
3. To revalue the investment to Market Value at Year End
Dec 31, Year 5 Investment in Safebuy Dr 3,000
OCI - Unrealized Gain (Reported as SE in the BS)
(To revalue investment to Market Value (fair value) at Year End

There is no entry recorded for Investors share in the income of the investee
Eventhough Safebuy earned a net income of $100,000 - Jenstar will not record Jenstar's share

Account balances in Jenstar's book as at Dec 31, Year 5

the BS under Current Assets Investment in Safebuy (Asset account) 95, 000+3,000 = 98,000
Investment Income (Dividend Income ) 8,000
Income Statement Year 5 OCI - Unrealized Gain on revaluation of Investment in Safebuy 3,000

Jan 10, Year 6 Cash A/C DR 99,000

Investment in Safebuy
OCI - Gain on Sale of Investment
(Being sale of investment in Safebuy

Total balance in the OCI A/C in Jenstar's books is 3,000 +1,000 = 4,000
Because Jenstar has sold Jenstar's investment in Safebuy, the balance in the OCI Account
of $4,000 is removed from OCI and credited to Retained Earnings

Jan 10, Year 6 OCI- Gain on Sale of Investment DR 4,000

Retained Earnings CR
Transfer of realized /unrealized gains on Investment in Safebuy Shares to Retained Earning)
without recycling.
 95,000

$80,000 or $8,000

8,000

3,000

record Jenstar's share

Reported in the BS under Current Assets

Reported in Income Statement Year 5
Reported as part of SE in Jenstar's BS

98,000
1,000

n the OCI Account

4,000
to Retained Earning)
Cost Method
Investor records the investment at Cost
1. To record the investment
Jan 1, Year 5 Investment in Safebuy A/C DR 95,000
Cash A/C CR 95,000
Investment in 10% of the Shares of Safebuy)

2. To record dividends received from the investee (Safebuy)

Safebuy declared dividends of $80,000
Jenstar owns 10% of Safebuy ( Jenstar invested in 10% of the shares of Safebuy)
Jenstar's share of the dividend that Safebuy declared would be 10% of $80,000 or $8,000
Dec 31, Year 5 Cash A/C DR 8,000
Investment Income ( Dividend Income) CR 8,000
(To record dividend received from Safebuy)

On Dec 31, Year 5 balances in Jenstar's books are

Investment in Safebuy $95000 (Reported in the BS as a Current Asset)
Investment Income (Dividend Income) Reported in the Income Statement as Revenue
Under the cost method the investor will NOT:
1. Record the investor's share of net income of the investee - no entry for Jenstar's
10% share in the net income of $100,000 earned by Safebuy.
2. Record an entry to revalue the investment to Market Value

Jan 10, Year 6 Sale of Investment

Cash A/C Dr 99,000
Investment in Safebuy CR 95,000
Realized Gain on Sale of Investment 4,000
(Being Sale of investment in Safebuy)
Illustration on Page 59 Jenstar and Safebuy DR CR
EQUITY METHOD
In the books of the Investor - Jenstar
1. To record the investment
Jan 1, Year 5 Investment is Safebuy A/C DR 95,000
Cash A/C CR 95,000
(Purchase of 10% of the Shares of Safebuy)
2. To record dividend received from the Investee (Safebuy)
Safebuy declared dividends of $80,000
Jenstar owns 10% of Safebuy ( Jenstar invested in 10% of the shares of Safebuy)
Jenstar's share of the dividend that Safebuy declared would be 10% of $80,000 or $8,000
Dec 31, Year 5 Cash A/C DR 8,000
Investment in Safebuy Dr 8,000
(To record dividends received from Safebuy)
3. Under the Equity Method there is no entry recorded to revalue the investment to Market Value at Year End

4. Under the Equity Method, the investor (Jenstar) records an entry for Investors share in the income of the investee
Safebuy earned a net income of $100,000 - Jenstar invested in 10% of the Shares of Safebuy
Jenstar's share of the net income of Safebuy is 10% x 100,000 = 10,000
Dec 31, Year 5 Investement in Safebuy A/C Dr 10,000
Equity Method Income CR 10,000
(To record the investors Share of the income of the investee)
5. Inaddition, under the Equity Method, the Investor will record all other sources of income of the investee
e.g. Loss or Gains on discontinued operations
e.g. Other Comprehensive Income
On Dec 31, Year 5 Under the Equity Method, the Investor Jenstar will have the following balances
Investment in Safebuy = 95,000 +10,000 -8,000 = 97,000 Reported in the BS as at Dec 31 as a Curre
Equity Method Income = 10,000 10,000 Reported as revenue in Jenstar's income s

January 10, Year 6 Cash A/C Dr 99,000

Investment in Safebuy CR 97,000
Realized Gain on Sale of Investment 2,000
(Sale on investment in Safebuy)

Exercise on Page 63 Sources of Income in B Company:

Net income from operation 180,000
Loss from Discontinued Operations (40,000)
Other Comprehensive Income 10,000
A Co owns 30% of B Co

1. To record A Co's share of B Co's Operating Income

Investment in B Co A/C Dr 54,000
Equity Method Income 54,000
To record A Co's share in the operating income earned by B Co
2. To record A Co's share of the B Co's Loss from Discontinued Operations
Loss from Discontinued Operations DR 12,000
Investment in B Co A/C CR 12,000
To record A Co's share of the B Co's Loss from Discontinued Operations

3. To record A Co's share of B Co's Other Comprehensive Income (OCI)

Investment in B Co A/C DR 3,000
Other Comprehensive income B Co 3,000
To record A Co's share of B Co's Other Comprehensive Income (OCI)

Investment in B. Co A/C DR 45,000

Equity Method Income CR 54,000
Loss on Discontinued Operations DR 12,000
Other Comprehensive Income CR 3,000
To record the investors share of all sources on income from the
investee under the Equity Method
57,000 57,000
o Market Value at Year End

in the income of the investee

(Reported as revenue in the Income Statement)

ome of the investee

ported in the BS as at Dec 31 as a Current Asset

ported as revenue in Jenstar's income statement

Reported as revenue in Jenstar's income statement

A's Share
54,000
(12,000)
3,000
d Operations
The investor purchased a Fair Value Investment = the investor will use the either the FVTPL Mehtod or the FVTOCI method to

The invesotr purchased additional shares and the investor's invesment is now that of significant influence.
1. On the date the the investor achieved significant influence, the investor has to revalue the investment to Market value
2. From that date forward the investor has to record and report the investment using the Equity Method i.e prospectively.

the investor that has significant influence sells some shares and now has less than 20% holding in the investee company.
1. The investor will revalue the Significant inflluence investment to market Value and then
2. From that date forward will follow the FVTPL or FVTOCI method proseectively.
htod or the FVTOCI method to record and report the investment.

estment to Market value

y Method i.e prospectively.

in the investee company.

Equity Method
The investor record the investors share of the income in the investee company
Example Co A owns 20% of Company B and the balance in the investment account in Co A's books is $100,000
Year 1 Co B makes a profit of $50,000
Year 2 Co B makes a loss of $100,000
Year 3 Co B makes a loss of $400,000
Year 4 Co B makes a loss of $200,000

Jan 1 Year 1 Balance in Investment Accounts 100,000 Investor guaranteed loans of the investe
Dec 1 Year 1 20% x 50000 = 10,000 10,000 $20,000
Balance Dec 31 year 1 110,000 Co A guranteed the loans of Co B to the e
Dec 31 year 2 A's shares of loss 20% x 100,000 (20,000)
Balance Dec 31, Year 2 90,000
Dec 31, Year 3 A's Share of Loss 20% x 400,000 (80,000)
Balance Dec 31 Year 3 10,000
Dec 31, Year 4 A's Share of loss 20% x200,000 = 40,000 (30,000) $10, 000 share of loss will be reported as
Dec 31, year 4 (20,000) $20,000 disclosed in the notes.

If the investor has guaranteed the loans of the investee company the investors share of losses in the investee company
will continue to be recorded in the investment account until the credit balance in the investment account equals the loan
guaranteed by the investor.
ooks is $100,000

guaranteed loans of the investee up to

nteed the loans of Co B to the extent of $20,000

share of loss will be reported as disclosure note

disclosed in the notes.

in the investee company

ent account equals the loan