Please read the information below and answer the questions. You will only have to answer the questions in bold based on the information below.Thank youIn the research below, how is this reviewed under IFRS? Which do you feel is more accurate and free of any manipulation? Why?
Equity Method is referred to as an accounting technique that is used by organizations to assess profits that is earned by investments in other different companies. As a matter of fact, the company usually reports the income earned mostly income statement as well as reported value usually based on firm shares as well as organization’s assets. (Reda, Reifler, & Stevens, 2014). It is important to note that all dividends are treated as repayment of the equity accounted profit but not as an income. Therefore, investment account cannot be eliminated.
Equity method normally have severe impact especially when it comes to adopting IFSR reporting on tax payments as well as financial reporting on equity based accounting like:
- Adjustments that are related to liabilities or asset associate made against investment account.
- Entry that may be combined with previous adjustment as well as entry including the tax effects.
Consolidation Procedures Not Applicable to Equity Method
Intergroup balance elimination is not at all required as one of the equity method. It does not lead to line-by-line aggregation off setting items as well as balances that are not required.
Investments that are in associates are not eliminated and investment account usually capture the inherent goodwill share of the fair value of assets that are identifiable at acquisition Share of the changes on retained earnings in post- acquisition together with other equity realization of the profit through the dividends.
The possible results of measuring fair market value of compensation that is equity-based at the grant date on the financial statements under the GAAP include:
1. Investments like equities are reported and the cost value is usually required to be recorded to a fair price so that those cost that are determined for equity should not be pt at the cost value.
2. Equity short-term sales require being determined at fair value having loss and profit to be determined.
3. Received dividends are considered as the income for trading and sale securities available.
4. When preparing the balance sheet at the end the price that is quoted for investments require being in fair price value in case there is any change that needs to be done in the detrimental value so as to be done in an easy way. (Reda, Reifler, & Stevens, 2014).
So as to minimize any distortion in fair market value I would recommend that all investors to be update always on what going on. This will help in reducing the risks associated with the fair market value.