The equity method gives recognition to the fact that investee earnings increase investee net assets that underlie the investment and investee losses and dividends decrease the net assets.

Question

Quizplus · Accepted Answer

Under the equity method, an investor recognizes its share of the profits and losses of the investee in its own financial statements, reflecting the fact that the investee's earnings increase the net assets underlying the investment, while losses and dividends paid by the investee decrease those net assets.

The Equity Method Gives Recognition to the Fact That Investee