Initial Recognition Under the Equity Method
Recording the Investment
An investment accounted for under the equity method is initially recorded at cost. This amount becomes the starting carrying value that will later be adjusted for the investor's share of earnings, losses, and dividends.
- Record investment at acquisition cost.
- No immediate recognition of investee assets or liabilities.
- Subsequent adjustments affect the investment account.
Tip
Think of the investment account as a 'living balance' that changes over time.
Summary
The initial cost serves as the foundation for all future equity method accounting.