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How are equity investments accounted for?
How are equity investments accounted for?
The table below summarizes the accounting for equity investments. Depending on how much control the investor has over the operations of the investee, the investment is accounted for as either a "fair value through net income", "equity method", or "consolidated" investment.Â
NO significant influence: Fair value through Net income
NO significant influence: Fair value through Net income
If an investor owns less than 20% of the voting shares of an investee, GAAP considers the investor is treated as an ordinary investor. In other words, the investor won't be able to influence what the company does and the purpose of the investment is to earn profits through trading shares.
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