Equity-method basis difference

An equity-method basis difference is the difference between the investor's cost and its share of the investee's underlying book amounts at acquisition. The difference must be assigned to its causes. It is not automatically one goodwill amount.

Use an approved acquisition-date allocation

ASC 323-10-35-13 accounts for the difference as if the investee were a consolidated subsidiary and addresses the portion recognized as goodwill. An acquisition-date schedule may assign amounts to inventory, equipment, identifiable intangible assets, and a residual. Each assigned amount follows the related asset's consumption or realization pattern.

Suppose the investor's approved share-level allocation assigns $30,000 to inventory sold during the period and $80,000 to equipment with eight equal periods of remaining life. The current adjustment to equity-method income is $40,000: $30,000 for inventory plus $10,000 for equipment. If the investor's unadjusted share of investee income is $90,000, adjusted equity-method income is $50,000.

Separate valuation from application

The carrying schedule applies the approved allocation. It does not decide fair values, useful lives, or the residual. Retain the acquisition date, ownership fraction, investee book amounts, valuation support, assigned layers, realization patterns, accumulated adjustments, and remaining balances. Review impairment at the investment level under the applicable guidance rather than treating the equity-method goodwill portion as a free-standing asset.