Question

Under the equity method, why does the investor company measure revenue on a proportionate basis when income is reported by the affiliate company rather than when dividends are declared?

Answer 1

The equity method calls for the investing business enterprise to report the investee's income or losses in shares to the percentage of ownership. The fairness method also makes periodic modifications to the price of the asset on the investor's balance sheet.

Underneath the equity technique, the investment is, to begin with, recorded in the equal manner as the cost technique. but, the amount is sooner or later adjusted to account for your proportion of the organisation's earnings and losses. Dividends aren't treated as earnings under this method.

The equity method is known as so because the use of this technique lets in recording the net impact of consolidation in one line earnings statement as investee's internet earnings. The investor wants no longer to show every adjustment containing sales, fees, goodwill impairment, or amortization one by one.

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