Lesson plan
Equity method
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 shares of the associate company, and therefore has significant influence on the latter's management. Under International Financial Reporting Standards, equity method is also required in accounting for joint ventures. 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 shares, 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.
Article summary
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 shares of the associate company, and therefore has significant influence on the latter's management. Under International Financial Reporting Standards, equity method is also required in accounting for joint ventures. 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 shares, 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.
Key claims
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Discussion questions
- Summarise the article in your own words. Which single claim would you verify first, and why?
- Which claim in this article is most likely to be revised as the sources update? How would you check its current status?
- If two sources disagreed about one of these facts, what would you need in order to trust one over the other?
Bibliography
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Key claims and bibliography are generated from the same tracked claims and sources as the article page.