The main difference relates to the amount of ownership the company has in another entity. If the company owns less than 20% of the outstanding shares for the company they invested in, then the fair value method (i.e., cost method) is used. If the company owns between 20% to 50% of the outstanding shares, then the equity method is used.
There are exceptions where a company can own less than 20% but have significant influence. In this case, the equity method will be used. The company can also own greater than 20% but not have significant influence. In This case, the fair value method can be elected.
Anything over 50% requires consolidation.
You might also be interested in... -
Three Reasons to Become an Accountant
If you’re someone who is intrigued by numbers, enjoys problem-solving and wants to help others, then accounting might be the perfect career for you. While some people may be put off by its unalluring reputation, accounting is an excellent career choice that has many benefits. In this article, we look at three of the reasons...
-
Qualified Retirement Planning: Tax Advantages & Disadvantages
Home Advantages and Disadvantages of Tax-Free and Deferred-Tax Retirement Plans What are “qualified retirement plans” and how can they be effective for tax planning? Well, there are plenty of tax savings advantages to individuals contributing to tax-free retirement accounts, as well as tax-deferred retirement accounts. However, this doesn’t necessarily mean that there are no disadvantages...
-
CPA Evolution Survival Guide
Download Your eBook by selecting the download icon in the top right-hand corner
Three Reasons to Become an Accountant
If you’re someone who is intrigued by numbers, enjoys problem-solving and wants to help others, then accounting might be the perfect career for you. While some people may be put off by its unalluring reputation, accounting is an excellent career choice that has many benefits. In this article, we look at three of the reasons...
Qualified Retirement Planning: Tax Advantages & Disadvantages
Home Advantages and Disadvantages of Tax-Free and Deferred-Tax Retirement Plans What are “qualified retirement plans” and how can they be effective for tax planning? Well, there are plenty of tax savings advantages to individuals contributing to tax-free retirement accounts, as well as tax-deferred retirement accounts. However, this doesn’t necessarily mean that there are no disadvantages...
CPA Evolution Survival Guide
Download Your eBook by selecting the download icon in the top right-hand corner
