Question

Equity accounting for intercorporate investment relies on book value. But if the ownership is an investment, how does fair value accounting enter in? Should it be considered at all?

Answer 1

The fair value accounting for ownerships as an investment differs in case of IFRS and U.S. GAAP. IFRS does not allow any reclassifications into or out of the designated at the fair value category. On the other hand U.S. GAAP allows for reclassification between all categories and the reclassification is done using fair value at the date of reclassification.

In cases where investment costs are more than investor’s proportionate share of the net identifiable assets of the investees then the difference is allocated to specific assets whose fair value exceed the book value. The amount is then amortized over the useful life of the asset.