Modul AKLII-2 - Investor Acc Method

Akuntansi Keuangan Lanjutan II
Modul ke
02 Investasi Saham - Akuntansi dan

Pelaporan Investor (Stock
Investment - Accounting and
Fakultas
Ekonomi dan Bisnis Investor Reporting)

Oleh :
Program Studi Yoga Tantular Rachman, S.E., M.Si., Ak.
S1 Akuntansi Dosen Fakultas Ekonomi dan Bisnis
Stock Investments: Objectives
1. Recognize investors' varying levels of influence or control, based on the
level of stock ownership.
2. Anticipate how accounting adjusts to reflect the economics underlying
varying levels of investor influence.
3. Apply the fair value/cost and equity methods of accounting for stock
investments.
4. Identify factors beyond stock ownership that affect an investor's ability to
exert influence or control.
5. Apply the equity method to purchase price allocations.
6. Learn how to test goodwill for impairment
2-1
Levels of Influence
Percent Ownership of Voting Stock
• <20% – presumes lack of significant >50%

<20%
Fair value
influence – fair value (cost) method (cost)
• 20% to 50% – presumes significant Consolidated
method
influence – equity method financial
• >50% – presumes control – statements Equity
consolidated financial statements- method
acquisition method
20-50%
2-1
Accounting for the Investment
Degree of Investment's carrying Investment income
influence value
Lack of significant Fair value (cost, if Dividends declared
influence nonmarketable)
Significant Original cost adjusted to reflect Proportionate share of
influence periodic earnings and investee's periodic
dividends, e.g., a proportionate earnings*
share of investee's net assets
* If income were measured as dividends declared, by influencing or controlling

dividend decisions, the investor could manipulate its own investment income.
2-1
Fair Value (Cost) Method
PSAK 15
At acquisition: Pilzner buys 2,000 shares of Sud for
$100,000.
Investment in Sud 100,000
Cash 100,000
• Pilzner receives $4,000 in dividends from Sud.
Cash 4,000
Dividend income 4,000
2-1
Fair Value Method, at Year-end
• Reduce dividend income recognized, if needed
Dividend income 1,000

If Pilzner determines that cumulative dividends exceed its
cumulative share of income by $1,000.
• Adjust investment to fair value
Allowance to adjust available-for- 21,000
sale securities to fair value
Other comprehensive income 21,000
If fair value of increases to $120,000 and the Investment in
Sud account balance is $99,000.
2-1
Stock Investments – Investor Accounting and Reporting
3b: Equity Method
2-1
Equity Method
PSAK 15
• At acquisition: Pilzner buys 2,000 shares of Sud for
$100,000.

Cash 100,000
• Pilzner receives $4,000 in dividends from Sud.
Cash 4,000
2-1
Equity Method, at Year-end
• Pilzner determines that its share of Sud's income is
$5,000.
Equity income 4,000
• The ending balance in the Investment in Sud is:

$100,000 cost - $4,000 dividends + $4,000 income
= $100,000.
2-1
Significant Influence
• 20% to 50% voting stock ownership is a
presumption of significant influence. Use the
equity method.
• Don't use equity method if there is a lack of
significant influence
1. Opposition by investee,
2. Surrender of significant shareholder rights,
3. Concentration of majority ownership,
4. Lack of information for equity method, and
5. Failure to obtain board representation.
2-1
Control
• More than 50% voting stock ownership is
presumptive evidence of control. Prepare
consolidated financial statements.
• Don't consolidate
• if control is temporary or
• if the parent lacks control
1. Legal reorganization or bankruptcy
2. Severe foreign restrictions.
2-1
Stock Investments – Investor Accounting and Reporting
5: Applying the Equity Method
2-1
Acquisition Cost > FV net assets
FV net assets > BV net assets
Payne acquires 30% of Sloan for $5,000. Sloan's identifiable net
assets (assets less liabilities) are:
Fair value: A – L = $18,800 - $2,800 = $16,000.
Book value: A – L = E = $15,000 - $3,000 = $12,000
The $4,000 difference ($16,000 - $12,000) is due to:

• $1,000 undervalued inventories sold this year,
• $200 overvalued other current assets used this year,
• $3,000 undervalued equipment with a life of 20 years, and
• $200 overvalued notes payable due in 5 years.
$5,000 > 30%(16,000) > 30%(12,000)

$5,000 > $4,800 > $3,600
2-1
Acquisition of Sloan Stock
At acquisition, Payne pays $2,000 cash and issues common stock
with a fair value of $3,000 and par value of $2,000. Payne also
pays $50 to register the securities and $100 in consulting fees.
Investment in Sloan 5,000

Cash 2,000
Common stock, at par 2,000
Additional paid in capital 1,000
Additional paid in capital 50
Investment expense 100
Cash 150
2-1
Cost/Book Value Assignment
Cost of acquisition $5,000
Less 30% book value = 30%(12,000) 3,600
Excess of cost over book value $1,400
Assigned to: Amount Amortization

Inventories 30%(+1,000) $300 1st year
Other curr. assets 30%(-200) (60) 1st year
Equipment 30%(+3,000) 900 20 years
Note payable 30%(+200) 60 5 years
Goodwill (to balance) 200 None
Total $1,400
2-1
Dividends and Income
Payne receives $300 dividends from Sloan.
Cash 300
Investment in Sloan 300
Sloan reports net income of $900.

Payne will recognize its share (30%) of Sloan's
income, but will adjust it for amortization of the
differences between book and fair values.
2-1
Amortization and Investment Income
Cost/book value Initial 1st year Unamortized

differences: amount amort. excess at year-end
Inventories $300 ($300) $0
Other curr. Assets (60) 60 0
Equipment 900 (45) 855
Note payable 60 (12) 48
Goodwill 200 0 200
Total $1,400 ($297) $1,103
Investment income is 30% of Sloan's net income – amortization
30%($3,000) – $297 = $603.
2-1
Year-end Entry & Balance
Investment in Sloan 603

Income fromRecord
Sloanthe investment income
603
CostThe– ending
dividends
balance in the+ investment
investment account is: income
5,000 – 300 + 603

= 5,303.
2-1
More on Cost/Book Value Assignment
• On acquisition date, compare:

• Cost of acquisition,
• Book value of net assets, and
• Fair value of identifiable net assets
• Cost of the investment includes cash paid, fair value of securities
issued, and debt assumed.
• The book value of the investee's net assets
= assets – liabilities, or
= stockholders' equity
2-1
Fair Values Used in Assignment
• Identifiable net assets include all the investee's assets and

liabilities, whether recorded or not
• Fair value of research in progress
• Fair value of contingent liabilities
• Fair value of unrecorded patents
• Exception: use book value for pensions and deferred taxes.
• If cost > fair value, goodwill exists.
• If cost < fair value, a bargain purchase exists.
2-1
Bargain Purchase
When the acquisition cost is less than the fair value
of the identifiable net assets, a gain is recognized
on the acquisition.
The investment is recorded at the fair value of the
identifiable net assets
Investment in ABC xxx
Cash, CS, APIC xxx
Gain on bargain purchase xxx
2-1
Interim Acquisitions
Book value of net assets = BV equity.

If equity is given as beginning of year, add current earnings and
deduct dividends to date.
Amortization for first, partial, year:
• Take full amortization for inventory and other current assets disposed of
by year-end.
• Take partial year's amortization for equipment, buildings, and debt to
be written off over multiple years.
Record dividends if after the acquisition date.
2-1
Acquisition in Stages
• Also called a step-by-step acquisition.
• Fair value (cost) method equity method
• Retroactive adjustment
• Investee's growth in retained earnings is
• Excess of income over dividends declared
• Investment account desired balance using equity
method = original cost + share of growth in retained
earnings – amortization, if any
Investment in XYZ xxx

Retained earnings xxx
2-1
Sale of Equity Investment
• Sale of investment that results in a lack of
significant influence over the investee
• Equity method fair value (cost) method
• Prospective treatment
• For the sale
• Reduce the investment account for a proportionate
share of the stock sold
• Record a gain or loss on the sale
• Apply the fair value (cost) method to remaining
investment
2-1
Stock Purchased from Investee
If stock is purchased from old shareholders, the percentage

ownership is based on the shares outstanding and the
investee's equity is not changed.
• If acquired directly from the investee:
• Percentage acquired = shares acquired / (shares acquired +
previously outstanding shares)
• Investee's new stockholders' equity = Previous equity +
value received for new shares
2-1
Investee with Preferred Stock
• Compare cost of acquisition to the book value of the
common stock.
= Total equity – book value of preferred stock*
* BV of PS = call value + dividends in arrears
• Dividends received will be a portion of the dividends to
common shareholders
= total dividends – current PS dividends
• Investment income is based on income available to
common shareholders
= investee net income – PS dividends**
** Pref. Div. = current dividend if cumulative, or
dividends declared if noncumulative.
2-1
Special Reporting Issues
• If material, the investor continues separate
reporting of extraordinary items and/or
discontinued operations of the investee
• Income from Investee is based on income before
discontinued operations or extraordinary items
• Optionally, the investor may report its equity
investments at fair market value, FASB Statement
Nos. 159 and 157
2-1
Disclosures
• For significant equity investees

• Name, percent ownership
• Accounting policy
• Difference between investment carrying value and underlying
equity in net assets
• Aggregate market value
• Summarized asset, liability, operations
• Related party disclosures FASB Statement No. 57
2-1
Stock Investments –
Investor Accounting and Reporting
6: Impairment of Goodwill
2-1
Impairment of Goodwill
• Test annually, and if significant events occur (e.g.,
adverse legal factors or loss of key personnel)
• FASB Statement No. 142: Two step process
1. If the fair value of the whole reporting unit < the
carrying value of the reporting unit including its
goodwill, there might be impairment.
– If no implied impairment, step 2 is not needed.
– Use quoted market prices of reporting unit, or
valuation techniques applied to similar groups of
assets and liabilities.
2. If the implied fair value of the goodwill < the carrying
value of the goodwill, record an impairment loss for the
difference.
2-1
Impairment of Equity Investments
• Goodwill implied in equity investments is not

tested for impairment.
• The investment itself is tested for impairment.
• APB Opinion No. 18
2-1

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Akuntansi Keuangan Lanjutan II

02 Investasi Saham - Akuntansi dan

Ekonomi dan Bisnis Investor Reporting)

• <20% – presumes lack of significant >50%

* If income were measured as dividends declared, by influencing or controlling

Dividend income 1,000

Investment in Sud 100,000

• The ending balance in the Investment in Sud is:

The $4,000 difference ($16,000 - $12,000) is due to:

$5,000 > 30%(16,000) > 30%(12,000)

Investment in Sloan 5,000

Assigned to: Amount Amortization

Sloan reports net income of $900.

Cost/book value Initial 1st year Unamortized

Investment in Sloan 603

5,000 – 300 + 603

• On acquisition date, compare:

• Identifiable net assets include all the investee's assets and

Book value of net assets = BV equity.

Investment in XYZ xxx

If stock is purchased from old shareholders, the percentage

• For significant equity investees

• Goodwill implied in equity investments is not

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