QuestionsQuestions (BSP CIRCULAR NO. 243)
BSP Circular No. 243 is dated 12 May 2000 and issued following the Monetary Board’s decision in Resolution No. 256 dated 18 February 2000.
It amended the Manual of Accounts for Commercial Banks (Circular No. 108, as amended) by revising the definition of the account “Equity Investments,” particularly to include “indirect” equity ownership in determining whether equity method accounting applies.
After acquisition, equity investments should still be carried at the recorded value on the date of acquisition, except in cases described below where the equity method must be used.
When the investments represent more than 50% of the voting stock of the investee company, whether directly or indirectly owned by the bank.
No. The circular states that the use of the equity method does not preclude the bank from setting up valuation reserves if warranted.
A bank has indirect ownership of an investee if its subsidiary and/or affiliate (with at least 20% of the investee’s voting stock directly owned by the bank) also has direct ownership in the same investee company.
The bank must have at least 20% of the voting stock directly owned by the bank (through the subsidiary/affiliate arrangement as described in the circular).
The bank must use the equity method of accounting for those equity investments, since the threshold is based on voting stock owned directly or indirectly.
It applies to both expanded and non-expanded banks.
It applies to the financial statements of expanded and non-expanded banks as of 31 December 1999.
Equity earnings under the amendment will not be eligible for dividend declaration.
To revise the definition and accounting treatment of “Equity Investments,” aligning it with the Monetary Board’s resolution on including indirect equity ownership in the computation for equity method qualification.
It was adopted/issued on 12 May 2000 and signed by (SGD.) RAFAEL B. BUENAVENTURA, Governor.
Circular No. 108 dated 6 May 1996, as amended by Circular Nos. 201 and 231 dated 1 May 1999 and 21 March 2000, respectively.