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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.