4.1 Overview

ASC 323-10-30 describes how investments that are accounted for by using the equity method of accounting should initially be measured (see Section 4.2). An equity method investment is presented on the balance sheet as a single amount and is generally reflected at its cost basis upon acquisition. When determining the initial cost of the investment, the entity should include in the cost basis certain transaction costs, certain contingent consideration arrangements (see Section 4.4), and previously held interests in the entity.

An investor is required to account for any differences between the cost of the investment and the underlying equity in the investee’s net assets, referred to as basis differences, as if the investee were a consolidated subsidiary (see Section 4.5).

An investor that had previously accounted for an investment on a basis other than the equity method may subsequently be required to apply the equity method to that investment. For example, an investor holding an investment accounted for at fair value under ASC 321 may obtain the ability to exercise significant influence over such an investee by obtaining or otherwise increasing an ownership interest in the investee’s voting common stock (or in-substance common stock). If the investor is subsequently required to apply the equity method, it should apply the initial measurement principles discussed within this chapter.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.