How to handle interest in intercorporate investments

net, interest, problems, before, equity

I’m aware how to handle NI and dividends for both passive investments and the equity method.
What about interest? Page 118 Book 2 shows that interest goes on the I/S for H2M, AFS, and Trading. So if interest paid was 1M, do you just add 1M to the parent’s net income?
What about in equity method?
I haven’t seen interest before in any intercorporate problems..

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ryanlb

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发表于 2013-4-14 19:47 | 只看该作者

Interest/dividend income would show up as an operating line item on the IS. The equity method would be the same.

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dkishore1

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发表于 2013-4-14 19:47 | 只看该作者

The equity method would be the same.
meaning that interest income does not affect either balance sheet or income statement under eqiuty method?

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thommo77

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发表于 2013-4-14 19:48 | 只看该作者

Effects on interest using the equity method:
Interest income would increase your operating income.
On the BS, I know for a fact that Dividends decrease your investment in sub account through this relationship:
Beg. investment in sub
+ Pro rata share in earnings
- Dividends
End investment in sub
I don’t think interest payments would have any bearing since interest would be a coupon payment on debt issued by the sub to the parent.

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