If an Entity Had Previously Held an Investment in Another

question 56

True/False

If an entity had previously held an investment in another entity and by a further investment that investee became an associate or joint venture of the entity, at the date of the second investment, the previously held investment is revalued to fair value with any gain/loss being taken to profit or loss.

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Definitions:

Partial Equity Method

A method of accounting for investments where the investor recognizes its share of the profits and losses of the investee, to the extent of its initial investment, in its financial statements.

Noncontrolling Interest

A portion of equity (ownership) interest in a subsidiary not owned by the parent company, reflecting the share of the subsidiary not attributable directly to the parent company's shareholders.

Equipment Undervalued

A situation where the recorded book value of equipment on the financial statements is less than its current market value.

Partial Equity Method

An accounting approach used for investments where the investor has significant influence but not full control, recognizing income based on the proportionate share of the investee's earnings.