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When a company purchases shares (equity) in another company, the investment amount may exceed their share...


When a company purchases shares (equity) in another company, the investment amount may exceed their share of the book value of the underlying net assets of the investee. How does the investing company account for this excess amount under the equity method?

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When a company purchases shares (equity) in another company, the investment amount may exceed their share of the book value of the underlying net assets of the investee, then the investing company account for this excess amount as a goodwill (an intangible future value) under the equity method rather than attributing it to any specific investee asset or liability.

the investing company may be willing to pay an extra amount to investee as this investment is expected to have good future prospects.

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