BSP Circular on Equity Investments Accounting

BSP Circular No. 243 amends the Manual of Accounts for Commercial Banks issued under BSP Circular No. 108 dated 6 May 1996.
The Manual of Accounts is treated as previously amended by Circular Nos. 201 and 231 dated 1 May 1999 and 21 March 2000, respectively.
The Circular’s operative change is the re-definition and related rule-set for the account “Equity Investments.”
The Circular’s adoption date is 12 May 2000.

The account “Equity Investments” is re-defined in the Manual of Accounts by replacing the referenced page (Page 15-b).
Equity investments must be carried at the recorded value on the date of acquisition after acquisition.
The equity method of accounting must be used for investments representing more than 50% of the voting stock of the investee company.
The “more than 50%” threshold applies to voting stock directly or indirectly owned.

After acquisition, equity investments are carried at recorded value except where the investment represents more than 50% of the voting stock.
Where the equity method applies, the equity method governs the accounting for the investment.
The use of the equity method does not prevent the bank from setting up valuation reserves when warranted.

A bank has indirect ownership of an investee company when its subsidiary and/or affiliate owns the investee company.
Indirect ownership exists when the bank’s subsidiary and/or affiliate has at least 20% of the voting stock directly owned by the bank.
The subsidiary and/or affiliate’s ownership interest is treated as creating the bank’s indirect ownership in the investee company for purposes of applying the voting-stock threshold.

The amendment applies to financial statements of expanded and non-expanded banks as of 31 December 1999.
Equity earnings arising under the amendment will not be eligible for dividend declaration.