Discontinuing the Equity Method
When Significant Influence Ends
If the investor loses significant influence but retains an ownership interest, the equity method is discontinued. The remaining investment is generally measured under the applicable guidance for passive investments.
- Stop recognizing share of earnings.
- Use carrying amount as the new basis.
- Apply fair value guidance going forward when appropriate.
Note
A change in ownership percentage does not automatically mean significant influence has ended.
Summary
The accounting method changes once significant influence no longer exists.