Investment Costs that Exceed the Book Value of the Investee - Level II FRA

When the cost of the Investment > investor’s proportionate share of the investee’s (associate’s) Net Identifiable Assets:


· The difference is first allocated to specific assets.
· These differences are then amortized to the investor’s proportionate share of the investee's profit or loss over the economic lives of the assets whose fair values exceed book values.

Suppose with 25% ownership share with Book Value = 800,000 PPoE's difference b/w book value and fair value is 40,000 and land's difference between book value and fair value is 60,000.
Purchase price = 250,000
Less (25% of 800,00) = 200,000
Excess Purchase price = 50,000
Less Attributable to Net Assets
PPoE = 25% of 40,000 = 10,000
Land = 25% of 50,000 = 15,000
Residual Amount (Goodwill) = 25,000 (50,000 - 10,000 - 15,000)


Investment Costs that are less than the Book Value of the Investee:
When the cost of the Investment < investor’s proportionate share of the investee’s (associate’s) Net Identifiable Assets:

· The difference is excluded from the carrying amount of the investment and rather included as Income in the determination of the investor’s share of the investee’s profit or loss in the period in which the investment is acquired.