The Equity Method in Accounting

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The Equity Method in Accounting
Hira Aziz, Pakistan, Premium Member
The Equity Method is a tool of accounting used by companies to record their equity investments in a separate company or entity which becomes their associate company or joint venture company. With the help of the equity method, the investor company (holding or parent company) values its investment and its share in the profits and losses of the investee company. According to both accounting standards (US GAAP and IFRS), a holding company must use the equity method when it has a substantial (but less than majority) share in the subsidiary company and/or it has a significant influence over the operational activities of the subsidiary company. If an investor holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly or indirectly (eg through subsidiaries), less than (...) Read more? Sign up for free

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Adeniji Emmanuel, Student (University), Nigeria, Member
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