What is the Equity Method? Definition and meaning

Equity Method

Definition: the Equity Method is a tool of accounting used by companies to record their equity investments in a separate company or entity which becomes their associate company or joint venture company. With the help of the equity method, the investor company (holding or parent company) values its investment and its share in the profits and losses of the investee company.
According to both accounting standards (US GAAP and IFRS), a holding company should use the equity method when it has less than majority shares in the subsidiary company but it does have a significant influence over the operational activities of the subsidiary company.

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