Under the new accounting standards long-term equity investments costing Discussion

Abstract: China's new <<Accounting Standards>> the promulgation and implementation. So that our accounting standards convergence with international accounting standards in another a big step forward, and long-term equity Investment to develop a new approach to the Long-term equity Investment is more scientific and accurate, therefore, Investment income and Investment cost accounting is particularly important to this paper to explore this issue in order to correct accounting practices for businesses to save costs, create greater efficiency.

Keywords:: long-term equity Investment of new accounting standard costing

February 15, 2006, issued by the Ministry of Finance <<New Accounting Standards>> (hereinafter referred to as the "new guidelines") has aroused widespread concern and gave a high evaluation of which criteria were of greater long-term equity Investments amendments <<Long-term equity Investments>> as a separate criterion, specification of pooling of interest method and the purchase method of accounting and French merger, the merger idea is also to Economic entities by the parent company theory, theory, etc., but also with international practice convergence of needs, but also to our accounting practices of the larger challenge this paper to explore this do the following:

A long-term equity under the new guidelines confirm the initial cost is more specific, accurate

(A) the cash purchase of long-term equity Investment shall be the actual payment of the purchase price and payment of taxes, fees and other costs directly related to the initial Investment cost does not include the assessment of what happened on Investment, audit, consulting, etc. costs, not including the price paid has been included in declared but unpaid cash dividends or profits, this part of the process only as a receivable.

(B) the issuance of equity securities to obtain long-term equity investment shall be the issuance of equity securities at fair value as the initial investment cost.

(C) the investor's long-term equity investment is the investor to hold the investment for third-party investor in the enterprise as a form of long-term equity investments should be investment in the value of the contract or agreement as the initial investment cost However, the value of the contract or agreement is not fair.

(D) to obtain long-term debt restructuring through equity investment, debt to capital is about, and its creditors should have the initial investment cost and the fair value of shares is recognized as tax-related investment in the debtor, the book balance and debt restructuring creditors, the difference between the initial investment cost, profit and loss. claims of creditors have been impaired, should be the difference between the impairment write-downs, impairment downs not part of included profit or loss and if there are impairment write-downs after the balance should be reversed and offset current asset impairment losses. debt restructuring debt using cash, non-cash assets, debt, debt to capital, to modify other terms of a debt combination, etc., the creditors should be followed in order to receive cash, receive non-cash assets at fair value, fair value of shares of creditors entitled to modify other terms of a debt and the fair value of debt write-downs after the debt restructuring the book balance, the difference between with the case. The revised terms of debt involved or the amount due, the creditor should not be recognized.

(E) Business combinations achieved when the long-term equity investment, the initial investment cost should be determined as follows:
Mergers can be divided into not only the same way under the control of mergers and non-business combination under common control, also can be divided into holding merger, merger and the new merged holding merger is the merging parties in a business combination is achieved on control of the merging parties, the merging parties after the merger to maintain its separate legal personality and continue to operate, the merging parties to confirm the formation of a business combination the acquiree's investment merger is the merging parties, business combinations achieved by the merging parties total net assets of the combined write-offs are the legal personality of the merging parties were the original holders of the merging parties, assets, liabilities, after the merger, the combined party's assets, liabilities the new merger is a merger of the parties involved in the merger legal personality were canceled, re-incorporated a new company, so all parties involved will be combined assets and liabilities included in the consolidated books of enterprise issues, there is not a business combination achieved through long-term equity investment matters, while after holding merger will not the merging parties still continued to be involved in the combined company's assets, liabilities, included in the consolidated books of enterprise issues, but will have to obtain through the merger of the long-term equity investment matters.


Second, the long-term equity investment cost accounting cost method

<<Accounting Standards No. 2 - long-term equity investments>> states: using the cost method of accounting for long-term equity investments, investment income recognized investment companies, unit investment only after the investment is the cumulative net profit allocation, the profits or cash dividends exceed the above amount as the initial investment cost.

Under the new guidelines. Cost method of accounting methods do not distinguish between investment in time and investment year after year, just as in the table to calculate the total should only get this amount and the actual total was the amount found in the memorandum accounts has been recorded as the last stop "long-term equity investment," the initial cost and the balance, "investment income" of the balance, combined with cost analysis to determine the specific provisions, will be able to make the right of this accounting treatment. general this distribution of cash dividends or profits realized net profit for the previous year, the actual work was invested enterprises generally distributed once a year profit, but also a particular year is distributed twice a year invested enterprises profit situation (mid-second half of the profit distribution). if they are distributed twice profits invested enterprises, investment companies based upon the same way twice accounting treatment, only interim profit distribution declared in the second half, the investment company's net cumulative allocation should be entitled to be included in the first half should have the net profit allocation (based on semi-annual report released by investment company basis) for the cost of long-term equity investment write-down is sometimes necessary, sometimes not for the non-reversal of write-downs, sometimes some or all of the reversal, if necessary, when reversed Reversal of reversal to a maximum amount of initial investment costs amount to determine the reversal in the balance when taking into account the people of this total amount of investment income account credit + accounts have been recorded investment income credit balance <or = cumulative Net income allocation should enjoy.

In practice, when the investors have control of the investee, the old guidelines required by the equity method of treatment, the new guidelines by the cost method to the new guidelines require that, under the same control in the acquired subsidiaries using the cost method When required to determine the initial costs. investors for the initial investment cost is greater than the combination acquired by the acquiree's identifiable net assets the difference between the fair value of the share. is recognized as goodwill, investments for the initial investment cost is less than merger have been achieved in the acquiree's identifiable net assets of the fair value of the difference should be counted as profit or loss in earnings of investee companies to obtain the case, the investment company's assets and rights will be reduced. Links to free download http : / / www.hi138.com Third, the long-term equity investment, costing the equity method

Under the new provisions of the guidelines, the investment companies have been investing with joint control or significant influence of long-term equity investments should be accounted for using the equity method. This provision will be the scope of equity method has been adjusted, the scope no longer includes the invested enterprise to be investor can control the relationship between long-term equity investments. equity method investment is measured at the initial cost of investment, after the companies have been invested under the investment units of all changes in equity share investment in adjusted book value method. Under the equity method, the long-term the book value of equity investment was invested with the unit to changes in equity, including net profit of the investee or the occurrence of net loss and other changes in owners' equity.

The new guidelines in long-term measurement of changes in equity investments mainly in the long-term equity investment difference approach. Equity is the difference between long-term equity method equity investment, the initial investment cost and the unit should have been the share of owner's equity difference with the old criteria, the initial cost of long-term equity investment should have been invested with the unit's share of ownership compared to determine whether the profit or loss, adjusted for the cost of the new guidelines for the introduction of the concept of fair value, with investment business Investment accounted for the fair value of identifiable net assets to reflect its share of the possession of the company's share is undoubtedly better to follow the precautionary principle in order to prevent some companies use equity investment balance adjustment of profits.


CONCLUSIONS

Therefore, when the invested enterprise to be invested enterprise has joint control or significant influence, should be accounted for using the equity method; when to investments without any significant impact, at best, a strategic corporate investors, corporate cost method should be used in short cost method and equity method application of the corresponding commitment by the investee's net loss accounting treatment made significant improvements while establishing the cost basis of accounting position, it reflects the introduction of the fair value of China's accounting standards with international the characteristics of convergence of accounting standards in the equity method of accounting, the abolition of the "long-term equity investment difference" accounts and long-term equity investment, the lower the enterprise using the principles of operation of these causes of errors, increased space for corporate profits .


References:
[1] Song Liping, <<Long-term equity investment >>,<< >>,<< merger consolidated financial statements>> three changes in accounting standards and corporate ties of [J]. Friends of Accounting, 2009 (14).

[2] He Shurong, business combination, the accounting treatment of long-term equity investments [J]. Heilongjiang's foreign trade, 2008 (5).

[3] Chen Zhijuan, long-term equity investments under cost method of accounting for changes in investment costs [J]. <<Economic Research Guide>>, 2009 (12).

Links to free download http://www.hi138.com