Criteria and applications of equity procedure (IX)
DOI:
https://doi.org/10.51302/rcyt.2011.6797Keywords:
consolidation method, equity procedure, equity method, significant influence, joint management, previous homogenization, negative goodwill equity participation, acquisition stagesAbstract
The equity method is applied to carry out the valuation of the associated companies and those jointly controlled entities that voluntarily doesn’t implement the proportional integration method.
It develops when a society can be understood as being influenced significantly and therefore it would be an associated company.
The equity method can be structured in three phases:
1. Homogenization or adjustments on the financial statements. Not correcting the individual states, but provided the bound states to make the initial assessment and later.
2. Change of name. This method is based on changing the designation of investment associates or jointly controlled entities, which are now called the equity participations.
3. Investment appraisal. Initially valued at fair value of assets and liabilities that represents its participation within the limitations established in the regulations for business combinations. And then every time you performed on consolidated accounts (each year), it increases the value of participation by the increase in equity or decrease the value of participation by the decrease in net assets of the investment.
Within this process, it is essential the existence of the group so that you can apply the method to the equity method.