Question

Compare and Contrast the differences between the cost method, fair value method, equity method, and acquisition-equity method. Include Significant Interest and Control

Answer 1

Nature	Cost Method	Fair Value Method	Equity Method	Equity Acquisition Method
Holding percentage	The cost method of accounting is used by the company when the company holds less than 20% of a company’s stock.	The Fair Value method of accounting is used by the company when the company holds less than 20% of a company’s share.	The Equity method of accounting is used by the company when the company holds more than 20%-50% of a company’s stock	Equity acquisition method is used when the investment is 50% or more.
Significant Interest and control	Under this method the investor does not holds significant influence over the investee	Under this method the investor does not holds significant influence over the investee	Under this method the investor holds significant influence over the investee, but does not exercise full control over it, as in the relationship between a parent company and its subsidiary.	This method is used when the investor has significant influence over the investee.
Financial Reporting	Under the cost method of investment the value is reported at cost price. Any dividend received is treated as income in P&L.	Under the Fair value method of investment the value is reported at Fair market value. Fair value is also known as mark to market and it can change depending on market condition.	Under the equity method investment is reported at carrying value any income or losses from investee is adjusted. In addition, carrying value is adjusted with the dividend received.	Under the acquisition method company consolidate 100% of the subsidiary’s revenue and expenses, then deduct 50% of the subsidiary’s net income as minority interest.