RSM321H1 Chapter Notes - Chapter 5: Consolidated Financial Statement, Equity Method, Financial Statement
Document Summary
While a parent company can account for its investment by either the equity method or the cost method, the consolidated statements are the same regardless of the method used. The cost method is a method of accounting for investments whereby the investment is initially recorded at cost; income from the subsidiary is recognized in net income when the investor"s right to receive a dividend is established. This usually occurs when the dividend is declared. The profit or loss of the investor includes the investor"s share of the profit or loss of the investee. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the investor"s proportionate interest in the investee"s other comprehensive income. Such changes include those arising from the revaluation of property, plant, and equipment and from foreign-exchange translation differences. The investor"s share of those changes is recognized in other comprehensive income.
