Equity Method
Categories: Accounting
Proportions. Proportionate profits. That’s what it is. It’s all about equity, or being equitable, or fair, in the allocation of revenues and expenses when counting beans.
Whatever.com invested ten million bucks into whoosits.com to own a third of the company...which this year made 45 million in profits. Whatever.com applies the equity method of accounting to recognize their proportionate participation in the profits of whoosits.
That is, they own 33% and then recognize the “ownership” of that third of whosits’ profits of 45 million...or 15 million...attributable to the ownership stake of whatever.com.
In using the equity method of accounting, companies actually place an operating or active value on their pro rata equity participation gains and losses into companies in which they have invested.
All kinds of tax-related chicanery can happen in this wild, wild west of accounting, so if you like gunfire, this is the place to hang out...along with lawyers, IRS people, and bean counters in all their glory.
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Finance: What is the Equity Method?0 Views
Finance a la shmoop what is the equity method of accounting? Alright people
it's all about proportions and proportionate profits that's what it is
it's all about equity or being equitable or fair, fair in the allocation of [Jelly beans fall]
revenues and expenses when counting beans all right whatever dot-com
invested ten million bucks into whosits dot-com to own a third of the company which
this year many years after they invested made 45 million bucks in profits
whatever dot-com applies the equity method of accounting to recognize their
proportionate participation in the profits of whosits that is they own 33%
and then recognize the "ownership" of that third of whose its
profits of 45 million or 15 million bucks yeah that 15 million bucks is
attributable to the ownership stake of whatever dot-com so like if whatever [Whatever dot-com's earning appear]
dot-com had a eighty million in earnings that could add 15 million when it
reported 95 million got it in using the equity method of accounting companies
actually place an operating or active value on their pro rata equity
participation gains and losses into companies in which they've invested and
yes this works the other way too sometimes companies can shelter taxes by
showing losses in equity that they consolidate for their tax reporting and
all kinds of tax related chicanery can happen in this wild wild west of [People firing guns in wild west]
accounting so if you like gun fire this is the place to hang out along with
lawyers IRS people and you know bean counters in all their glory [Man counting beans on a desk]