Jade Angelie C. Muyco Bsa-2A Intermidiate Accounting 1 Class Participation

JADE ANGELIE C.
MUYCO BSA-2A
INTERMIDIATE ACCOUNTING 1
CLASS PARTICIPATION
1. Explain the significant influence.
Significant influence is the power to participate in the financial and operating policy
decisions of the investee but not control or joint control over those policies.
2. Explain the treatment of potential voting rights in assessing the existence of significant
influence?
Potential voting rights are currently exercisable or convertible when the rights cannot be
exercised or converted until a future date or until the occurrence of a future event.
However, when potential voting rights exist, the investor’s share of profit or loss of the
investee and of changes in the investee’s equity is determined on the basis of “present
ownership interest” and does not reflect the possible exercise or conversion of potential
voting rights.
3. When will an investor lose significant influence?
An entity losses significant influence over an investee when it losses the power to
participate in the financial and operating policy decisions of the investee. The loss of
significant influence can occur with or without the change in the absolute or relative
ownership interest.
4. Explain the equity method for accounting for share investment.
The equity method is applied when a company's ownership interest in another company

is valued at 20–50% of the stock in the investee. The equity method requires the
investing company to record the investee's profits or losses in proportion to the
percentage of ownership.
5. What is the meaning of excess of cost over carrying amount with respect to acquisition
of share investment?
Any excess of the entity’s share of the net fair value of the investee’s identifiable assets
and liabilities over the cost of the investment is included as income in the determination
of the entity’s share of the associate or joint venture’s profit or loss in the period in
which the investment is acquired.
6. What is the treatment excess net fair value over cost?
To calculate goodwill, the fair value of the assets and liabilities of the acquired business
is added to the fair value of business' assets and liabilities. The excess of price over the
fair value of net identifiable assets is called goodwill.
7. What is the accounting procedure under the equity method if the investor’s share of
losses of an associate equal or exceeds the carrying amount of investment?
The carrying amount is increased by the investor’s share of profit of the investee and
decreased by the investor’s share of the loss of the investee. The investor’s share of the
profit or loss of the investee is recognized as investment income.
8. Explain an impairment loss with respect to an investment in associate.
If the carrying amount of an investment in an associate or joint venture exceeds its

recoverable amount, an impairment loss is recognized. The loss is allocated to the
investment as a whole and not to the underlying assets of the investee that make up the
carrying amount of the investment.
9. Explain the accounting procedure if an associate has cumulative and noncumulative

preference shares.
When an associate has outstanding cumulative preference shares, the investor shall
compute it’s share of earnings or losses after deducting the preference dividends,
whether or not such dividends are declared.
When an associate has outstanding noncumulative preference shares, the investor shall
compute its share of earnings after deducting the preference dividends only when
declared.
10. Explain the treatment of the changes in the investor’s equity other than net income or
loss?
Adjustments to the carrying amount of the investment in associate may be necessary for
the changes in the investor’s proportionate interest in the investee arising from changes
in the investee’s equity that have not been recognized in the investee’s profit or loss.
Such changes include those arising from revaluation of property, plant and equipment
and from foreign exchange translation differences.
REFERENCES:
https://www.investopedia.com/terms/e/equityaccounting.asp
https://www.pkf.com/media/8d891e7f8e749e9/ias-28-investments-in-associates-and-joint-
ventures.pdf
https://money-zine.com/definitions/investing-dictionary/excess-of-cost-over-fair-market-
value/
https://advisory.kpmg.us/articles/2018/ias-28-impairment.html

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JADE ANGELIE C.

1. Explain the significant influence.

3. When will an investor lose significant influence?

4. Explain the equity method for accounting for share investment.

The equity method is applied when a company's ownership interest in another company

6. What is the treatment excess net fair value over cost?

8. Explain an impairment loss with respect to an investment in associate.

If the carrying amount of an investment in an associate or joint venture exceeds its

9. Explain the accounting procedure if an associate has cumulative and noncumulative

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