The equity accounting method seeks to reflect any subsequent changes in the value of the investee business in this investment account. investments in common stock, preferred stock or any associated derivative securities of a company, depends on the ownership stake. Investment amounting to 0-20%, 20%-50% and more than 50% of the outstanding capital must be accounted for using fair value method, equity method and consolidation respectively. However, it has left the accounting for equity method investments largely unchanged since the Accounting Principles Board released APB 18 in 1971. For example, if the investee makes a profit it increases in value and the investor reflects its share of the increase in the carrying value shown on its investment account. Accounting for Investments: Cost or Equity Method When companies acquire a minority stake in another company, there are two main accounting methods they can use. Accounting for equity investments, i.e. Equity Method: The equity method is an accounting technique used by firms to assess the profits earned by their investments in other companies.

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