This standard is established in accordance with the Basic Standards for Enterprise Accounting and governs the recognition and measurement of long-term equity investments. Long-term equity investments refer to equity investments that enable the investor to exercise control or significant influence over an investee, as well as equity investments in joint ventures.
I. Investment Type Classification
Subsidiary
Investee units over which the investor has control
Associate
Investees over which the investor has significant influence
Joint Venture
Joint venture determined in accordance with the Accounting Standards for Business Enterprises on Joint Arrangements
II. Initial Measurement
Long-term equity investments resulting from business combinations
Business combination under common control
Initial investment cost is measured based on the share of the acquiree's equity in the consolidated financial statements of the ultimate controlling party. Any difference is adjusted against capital reserve; if insufficient, retained earnings are adjusted.
Business combination not under common control
The initial investment cost is determined based on the merger cost as defined by the business combination standards. Intermediary fees are recognized in current period profit or loss.
Long-term equity investments acquired through other means
- • Pay Cash: At the actual purchase price paid (including directly related expenses, taxes, and other necessary expenditures)
- • Issue equity securities: At the fair value of equity securities issued
- • Non-monetary asset exchange: determined in accordance with the non-monetary asset exchange standard
- • Debt Restructuring: determined in accordance with the debt restructuring standard
3. Subsequent Measurement
Cost Method
Applies to: Long-term equity investments in which the investor has control over the investee.
- • At initial investment cost
- • Adjust cost for additional or withdrawn investment
- • Recognize cash dividends or profits declared by the investee as current investment income
Equity Method
Applies to: Long-term equity investments by investors in associates and joint ventures.
- • Recognize investment income based on the share of net profit or loss to be enjoyed or borne
- • Recognize other comprehensive income and adjust carrying value
- • Eliminate unrealized intercompany gains and losses
Loss Confirmation Limit:When recognizing the investee's net loss, the investor shall reduce the carrying amount of its long-term equity investment and other long-term interests that, in substance, constitute a net investment in the investee to zero. This limitation does not apply if the investor is obligated to bear additional losses.
IV. Disposal and Conversion
- • DisposeThe difference between the book value and the actual proceeds received is recognized in current period profit or loss.
- • Equity method to cost methodIf control is achieved through additional investment, the initial cost shall be the sum of the original book value and the cost of the new investment.
- • Cost method to equity methodWhen partial disposal of an investment results in loss of control, but the remaining equity interest allows for joint control or significant influence, accounting shall be changed to the equity method.
- • Equity method to financial instrumentsIf joint control or significant influence is lost, account for the investment in accordance with the financial instruments standard.
5. Impairment
Investors should monitor whether the carrying amount of long-term equity investments exceeds their share of the investee's net assets or similar indicators. If such conditions arise, conduct an impairment test on the long-term equity investment in accordance with Accounting Standard for Business Enterprises No. 8 — Impairment of Assets. When the recoverable amount is lower than the carrying amount, recognize an impairment provision.
Regulatory Document Attachment
Accounting Standards for Business Enterprises No. 2 — Long-term Equity Investments (PDF)