What is the difference between the equity method and the consolidation method?
The main difference is that the equity method is used when ownership is between 20% and 50%. As soon as the company has 50% ownership or more, the investment needs to be accounted for under the acquisition (aka consolidation) method since the company has majority ownership.
You might also be interested in...
What is the difference between the fair value method and the equity method?
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 […]
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 […]