BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -The equity method is applied when a company’s ownership interest in another company is valued at 20–50% of the stock in the investee. The equity method requires the investing company to record the investee’s profits or losses in proportion to the percentage of ownership.

Detailed explanation-2: -Investors do not treat dividends as revenue under the equity method. Instead, the investor subtracts the cash dividend amount from the investment carrying value. This treatment recognizes that the value of the investment has decreased by the cash distribution.

Detailed explanation-3: -Under the equity method, an investor debits an investment and credits revenue for its share of the investee’s earnings. The receipt of a cash dividend from the investee is treated as a return of an investment. Thus, it is credited to the investment but does not affect equity-based earnings.

Detailed explanation-4: -Equity method investments are recorded as assets on the balance sheet at their initial cost and adjusted each reporting period by the investor through the income statement and/or other comprehensive income ( OCI ) in the equity section of the balance sheet.

Detailed explanation-5: -Under the equity method, the dividend share received is not recorded as a dividend revenue. Instead, it is recorded as a reduction in the value of the investment. When the investee company pays a cash dividend, the value of its net assets decreases.