Equity investment difference refers to the difference between the initial investment cost of long-term equity investment and the share of the owner’s equity of the investee, or the difference between the book cost or net value of non-cash assets and the value confirmed through investment negotiation. .
The main reason for the difference in equity investment is that when an investor purchases equity from a third party in the securities market, the purchase price is higher or lower than the due share calculated according to the shareholding ratio. This is the result of the mutual willingness of both parties in the investment process.
The initial investment cost of the investing enterprise is greater than the share of the owner’s equity of the invested entity, which may be due to the fact that the owner’s equity calculated at fair value of the invested entity is higher than the book value or has unrecorded goodwill; otherwise, it may be due to Certain assets of the investee are overvalued or have negative goodwill.
The formula for calculating the equity investment difference is: Equity investment difference = initial investment cost – owner’s equity of the investee at the time of investment × investment shareholding ratio.