Introduction to Accounting for Intercorporate Investments

This technical note introduces the key concepts and methodologies of accounting for intercorporate investments, which occur when one company acquires the equity or debt of another company. The accounting basics are discussed for three investment categories: (1) passive investments, where little or no influence is present; (2) investments in associates, where significant influence is present and (3) investments in subsidiaries, where control is present. The note addresses the equity method of accounting for associates. For subsidiaries, the note discusses the notion of control, the allocation of a purchase price and recognition of goodwill, consolidation and goodwill impairment.