I have an investment that is accounted for under the equity method. We currently record the investment in the balance sheet and our share of the investee’s earnings. How do I determine the “basis difference” and record them?
Equity method investment
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Basis differences are when there’s a difference between the cost basis of the investee’s assets and their fair value. You would essentially need to allocate the cost to all the net assets through a hypothetical purchase price allocation (similar to business combinations) and compare the cost to the % fair value of the net assets. These basis differences are tracked offline in a workbook and need to be amortized or depreciated and included as part of your share of the earnings related to the investee.