Parent's investment and related investment income does not appear on the consolidated statements.

 
Parent's retained earnings reported in its internal records under the equity method should be equal to
consolidated retained earnings.
 
Equity method can be more accurate for reporting purposes

Consolidated Net Income = Net income of parent excluding investment + net income of subsidiary +
increase in acquisition differential - decrease in acquisition differential
 
Consolidated Net Income - combined income of parent and subsidiary plus or minus consolidation
adjustments
Consolidated Net Income Attributable to the Shareholders of the Parent Company - parent's
shareholders' share of consolidated net income (recorded by parent when using equity method)
 
Long-term assets differential is amortized over the useful life of related assets.
Inventory is derecognized into the income statement under COGS
Land is written down when impaired or derecognized and included in gain/loss in income statement only
when sold
Goodwill results in a loss on the income statement
 
Recoverable Amount - the higher of fair value less costs of disposals AND value in use
Fair Value - the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction, highest and best use for nonfinancial assets, using quoted market prices or comparisons
with prices of similar assets
Value in Use - present value of the future cash flows expected to be derived from the asset or group of
assets
 
If it is determined that one of these values is higher than the carrying amount, the asset is not impaired.
Impairment testing requires the estimation of future net cash flows associated with an individual asset
using the smallest identifiable group of assets that generates cash inflows that are largely independent
of the cash inflows from other assets or group of assets.
 
 
Tangible Assets (at end of reporting period)
1. Assess whether indicators exist that an asset may be impaired
2. Recoverable amount determined if impairment exists (recoverable higher than carrying, no
impairment) (recoverable lower than carrying, write down to recoverable)
 
Intangible Assets (annually)
1. Do step 2 as above
 
Goodwill (annually)
1. Recoverable amount for subsidiary as a whole is compared with carrying amount of subsidiary's
assets and liabilities, including goodwill
 
Reversing an Impairment Loss
1. Entity assess any indication that an impairment loss may no longer exist or has decreased
 2. If indication exists, recoverable amount determined and compared
An impairment loss can be reversed only if there has been a change in the estimates used to determine
the asset's recoverable amount. This is reported in net income unless the asset falls under another
standard.
 
If the noncontrolling interest was measured using the identifiable net assets method, only the parent's
share of the subsidiary's goodwill could be included on the consolidated financial statements
 
Use of the equity method should result in parent's net income reported in its internal records in any one
year being always equal to consolidated net income attributable to the shareholders of the parent for
that year. The parent's retained earnings in its internal records should always be equal to consolidated
retained earnings.