Equity method

Equity method in accounting is the process of treating equity investments, usually 20–50%, in associate companies. The investor keeps such equities as an asset. Proportional part of associate company's net income increases the investment, and payment of dividends decreases it. The ownership of more than 50% of voting stock creates a subsidiary. Its financial statements consolidate into the parents' ones.

Another type of account is the cost method, which keeps the value of the investment in subsidiary account at historic book value.

Further reading

• Morris, James E. (2004). Accounting for M&A, Equity, and Credit Analysts. New York: McGraw-Hill. ISBN 0-071-42969-7.
• Rosenfield, Paul (1985). Consolidation, Translation, and the Equity Method: Concepts and Procedures. New York: John Wiley & Sons. ISBN 0-471-81357-5. {{cite book}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)

See also

• Business valuation
• Enterprise value
• Associate company
• Minority interest
• Consolidation (business)

External links

• Equity Method of Accounting
• IAS 28 INVESTMENTS IN ASSOCIATES