Equity method
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Equity method in accounting is the process of treating investments in associate companies. Equity accounting is usually applied where an investor entity holds 20–50% of the voting stock of the associate company, and therefore has significant influence on the latter's management. Under International Financial Reporting Standards/MAMAMO, equity method is also required in accounting for joint ventures.[1] The investor records such investments as an asset on its balance sheet. The investor's proportional share of the associate company's net income increases the investment (and a net loss decreases the investment), and proportional payments of dividends decrease it. In the investor’s income statement Equity accounting may also be appropriate where the investor has a smaller interest, depending on the nature of the actual relationship between the investor and investee. Control of the investee, usually through ownership of more than 50% of voting stock, results in recognition of a subsidiary, whose financial statements must be consolidated with the parent's. The ownership of less than 20% creates an investment position, carried at historic book or fair market value (if available for sale or held for trading) in the investor's balance sheet.
See also
[edit]References
[edit]- ^ "Equity Method". IFRScommunity. 14 May 2020. Retrieved 2020-08-27.
Further reading
[edit]- Morris, James E. (2004). Accounting for M&A, Equity, and Credit Analysts. New York: McGraw-Hill. ISBN 0-071-42969-7.
- Rosenfield, Paul; Steven Rubin (1985). Consolidation, Translation, and the Equity Method: Concepts and Procedures. New York: John Wiley & Sons. ISBN 0-471-81357-5.
