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What is the consolidation method for an equity investment?

When a company purchases equity securities or invests in another company, there are three ways the investment can be reported: 1) Fair value option, equity method, and consolidation method.

If the company purchases more than 50% of the outstanding shares, then the company will be required to “consolidate” the investment. Basically, this means that the investment will become a subsidiary that must be consolidated.

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    The main difference relates to the amount of ownership the company has in another entity. If the company owns less than 20% of the outstanding shares for the company they invested in, then the fair value method (i.e., cost method) is used. If the company owns between 20% to 50% of the outstanding shares, then […]