What is IFRS's own capital method?

IFRS's own capital method is the style of accounting used under companies that own a significant amount of equity in another company. This method should be used if the company owns 20 to 50 percent of another company through investment in its capital. As a result, international financial reporting standards (IFRS) require that such a company has to be responsible for the change in the wealth of the company in which it has invested. If the IFRS own capital method is used, the reporting company must require a percentage of the net income of the other company equal part of its own capital.

The corporations that are governed by IFRS must provide accurate financial statements within their business obligations. In this way, potential investors and shareholders can benefit from financial transparency. Part of business as a large corporation involves investing in other businesses and there are certain rules that need to be followed on these occasions. If it isThe investment is so significant that the company acquires a certain decision -making power in another business, the method of own capital IFRS comes into play.

It is necessary for the company to use the IFRS capital method, owning 20 to 50 percent of another company's own capital. This usually means that the investment company has enough capital to have some authority in the future of the second company. If the amount of investment is less than 20 percent, the investment company can use the cost method, simply show the amount of investment and dividends. Investing more than 50 percent is the investment company a parent company and another subsidiary that requires a consolidated financial statement.

In order to perform the IFR capital method, the company must report a part of the net income of the company in which capital it owns. This part depends on the percentage actuallyWell. For example, imagine that a company A owns 25 percent of BY BODY shares. In year, B earns B 1,000,000 USD (USD) as a result that Company A has to report 25 percent of this amount or $ 250,000 for its own statement.

In the United States, corporations may be obliged to comply with another set of standards known as the general accepted accounting principles (GAAP.) There are certain differences between IFRS and GAAP rules. As for the IFRS capital method, it is a little more strictly applied to companies that own 20 to 50 percent of another company compared to the GAAP, allowing these companies to use the cost of the cost.