1 answer

Under what circumstances is the equity method used to account for an investment in stock?

Question:

Under what circumstances is the equity method used to account for an investment in stock?


Answers

Cercumstance when equity method is used---when the holding company (investor company) has significant influence over investee company.

Detailed explanation

There are two methods of recording investment in stock. Fair value method and equity method.

Equity method is used when the holding company has significant influence over the investee company.

Significant influence is said to be present when the holding company holds more than 20% of shares of of the investee company or holds more than 20% voting rights of investor company or both.

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