Equity Method within Group Accounts

[dc1982]

Hi all,

New here and sorry to launch straight into asking for help, but... well, I need it. It's about accounting under the equity method (as per IAS 28) where a subsidiary company itself holds an investment.

Presenting the question as an example:

• A owns 100% of B
• B owns 100% of C and 25% of D
• B is exempt from preparing consolidated accounts as it itself is consolidated within the group consolidated accounts of A.
• D makes a profit of 100 in the year.

Clearly the journal that needs to be posted in respect of D's profit is Dr Investments 25, Cr Share of Associate's Profit 25

The question is: does the journal
a) get posted in the books of Company B; or
b) given B's exemption from consolidation, get posted in as a consolidation journal in the preparation of the group consolidated accounts of A?

I was almost certain the answer was (a), but I'm feeling slightly outnumbered on the point within the team here!

Thanks in advance - any advice really is appreciated.

D

 

[kirby]

IAS says apply equity method if ownership is 20% or more
B is the 25% owner of D.
Under equity method, Journal as you show it is posted in books of B
This is true for B whether or not it is consolidated into A.
So the question for your group is - that journal has to be posted somewhere- if not into B's books , then where? only B makes sense