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I have a question regarding equity method accounting. in most example questions the case is that it is a first year investment in associate. When it is the second or third year of accounting, how do we account for the share of profit or loss in associate?
Cost x (as in initial cost of investment)
Investor’s % of associate’s Retained earnings xx
or is it
Carrying amount of investment x
Investor’s % of associate’s profit or loss for the year xx
I know that both should give the same answer, but in our workings which one is correct? to start with initial cost then subtract the share of retained earnings of associate as at the reporting date, or start with carrying amount of investment then the share of profit/loss for the year?
I hope my question makes sense.
The key to remember is that the Group SPL is showing what has happened during the year, so the share of profit of associate figure is the share of the profit for that year only.