When the investor's level of influence changes,it may be necessary to change to the equity method from another method.When the level of ownership rises from less than 20% to a range of 20% to 50%,the equity method typically would become appropriate and the investment account balance should be:

Question

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When the investor's level of influence changes, and it becomes necessary to change to the equity method from another method, the investment account balance should be retrospectively adjusted to the balance that would have existed if the equity method had been in effect for prior years. This is because the equity method requires that the investor recognize its proportionate share of the investee's earnings or losses, and any changes in the investee's equity, which were not recognized under other methods such as the cost method. Therefore, it is necessary to adjust the investment account balance to reflect the application of the equity method retrospectively.

When the Investor's Level of Influence Changes,it May Be Necessary