CFA® Level II FSA - Equity Method of Accounting (Investments in Associates)

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In this CFA Level 2 video, we will dive into Investments in Associates using the Equity Method. This accounting method is commonly used when an investor has significant influence over another company, but not enough to control it entirely.
We will start by discussing the basics of the Equity Method, including how it's applied to the investor's financial statements and the impact on the associate's financial statements. We will also cover the requirements for applying the Equity Method, including determining significant influence and recognizing the investor's share of the associate's profits and losses.
Additionally, we will explore the case of goodwill accounting when the purchase price of the investment is greater than the associate's net asset value. This scenario requires the investor to recognize goodwill on their balance sheet and periodically test for impairment.

[@rishisharma565]

Thanks for the detailed explanation of the topic. I was asked this question recently in an interview i could not answer it properly.

[@PrepNuggets]

Excellent!

[@tanmaychandra9434]

Man! this was some high quality shit.

[@hamidalum]

excellent#

[@PrepNuggets]

Thank you! Cheers!

[@janhavi.v1320]

perfectly helpful

[@PrepNuggets]

Glad to hear that!

[@kaustubh_shetye]

Nice explanation 👍
Would love to see some more videos on CZcams 😅

[@daredevil_491]

pese dede gareeb

[@kenny641]

I have a quick question. Is the return on capital (that represent dividend received from the investment, ie. the $60 in the example at 5:18) recorded as an asset on the balance sheet? Or is it recorded as an earning on the income statement?