Ben, Inc. follows IFRS for its external financial reporting. Ben, Inc. owns 25% of the outstanding stock of Black, Inc. and accordingly uses the equity method to account for its investment. Which of the following is true regarding Ben, Inc.'s policies related to Black, Inc.?
A) Ben, Inc. will increase the investment account for its pro-rata share of Black, Inc.'s net loss for the year.
B) Ben, Inc. will increase the investment account for its pro-rata share of the dividends paid out by Black, Inc. for the year.
C) Ben, Inc. will conform the accounting policies of Black, Inc. to its own accounting policies.
D) None of these is true regarding how Ben, Inc. accounts for its investment in Black, Inc.

Question

Quizplus · Accepted Answer

Under the equity method, the investor adjusts the carrying amount of its investment in an associate or joint venture to recognize its share of the profits or losses of the investee. This includes conforming the accounting policies of the investee to those of the investor to ensure comparability of the financial statements. Therefore, Ben, Inc. will conform the accounting policies of Black, Inc. to its own accounting policies.

Ben, Inc Follows IFRS for Its External Financial Reporting