Intercorporate Investments Accounting - Ownership Categories

Companies commonly make equity or debt investments in other companies.  Ownership can be minority (less than 50%) or majority (greater than 50%) and the degree of operational influence can be passive or active.  Naturally, these differences lead to differences in accounting treatments for which the well-trained financial analyst must be prepared to interpret.

The following table shows the categories of ownership recognized by U.S. GAAP and IFRS for the purposes of public financial reporting.

INVESTMENT CATEGORYLEVEL OF INVESTOR INFLUENCEINVESTOR OWNERSHIP LEVELACCOUNTING METHOD
Minority PassiveNot material.Less than 20%Four classes of accounting treatment:
1) held to maturity (HTM) 2) available for sale (AFS) 3) held for trading (HFT) 4) designated fair value instruments
Minority ActiveSignificant.20% - 50%Equity Method
Joint VentureJoint control.Joint ventureUS: Equity Method IFRS: Equity Method (proportionate consolidation previously allowed)
Controlling InterestControl.More than 50%Consolidation

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