Question

Briefly discuss the financial presentation of equity investments

Answer 1

Many companies are investing outside their business in order to maximize their profits and competitive advantage so they are buying into the equity shares of another company.

Equity investments has generally two types of financial presentation as equity investment can either be recorded through equity method, if the investment is more than 20% but less than 50%, it is recorded at cost if the investment is less than 20%.

It can also be said that if the investment is more than 50% it will have to be consolidated in the books of accounts of parent company.

if the investment is more than 20% but less than 50% then equity method is to be applied in which investment is to be recorded at purchase Price but fluctuation in the valuation of the investment will be readjusted in the balance sheet accordingly.

if the value of investment is less than 20% it will mean that it is not a substantial holding and it will also mean that it has to be recorded at the cost and when the sale is made, the profit or loss is recorded