Equity method of accounting
| Order ID |
53563633773 |
| Type |
Essay |
| Writer Level |
Masters |
| Style |
APA |
| Sources/References |
4 |
| Perfect Number of Pages to Order |
5-10 Pages |
Description/Paper Instructions
Equity method of accounting
The equity method of accounting is a financial reporting method used by companies to account for their investments in other companies. It is primarily used when the investing company has significant influence over the investee, but does not have control over it. The equity method allows the investing company to reflect its share of the investee’s profits or losses in its own financial statements.
Under the equity method, the investing company initially records the investment on its balance sheet at cost. As the investee generates profits or incurs losses, the investing company adjusts the carrying value of its investment to reflect its share of the investee’s earnings. This adjustment is typically done on a periodic basis, usually annually or quarterly.
To apply the equity method, the investing company needs to determine whether it has significant influence over the investee. Significant influence is generally considered to exist when the investing company owns between 20% and 50% of the voting shares of the investee. However, ownership percentage alone is not the sole determinant of significant influence. Other factors, such as representation on the investee’s board of directors, participation in policy-making decisions, or technological collaboration, can also indicate significant influence.
Once significant influence is established, the investing company includes its share of the investee’s profits or losses in its income statement. The share of profits or losses is determined by multiplying the investee’s reported earnings by the investing company’s ownership percentage. For example, if the investing company owns 30% of the investee, it would record 30% of the investee’s profits or losses in its income statement.
In addition to recognizing its share of profits or losses, the investing company also adjusts the carrying value of its investment on the balance sheet. This adjustment is made by adding the investing company’s share of the investee’s earnings or losses to the initial cost of the investment. The resulting carrying value represents the investing company’s proportionate ownership interest in the net assets of the investee.
The equity method also requires the investing company to disclose additional information about its investment in the footnotes to its financial statements. This information typically includes the investee’s name, the investing company’s ownership percentage, and summarized financial information about the investee, such as revenues, expenses, and net income.
It’s important to note that under the equity method, the investing company’s influence over the investee is not absolute control. The investee maintains its own separate legal and financial identity, and the investing company does not consolidate the investee’s financial statements with its own. Instead, the investing company recognizes its share of the investee’s results in a separate line item on its own financial statements.
The equity method is commonly used when companies have long-term investments in other companies, such as subsidiaries, associates, or joint ventures. It provides a way for the investing company to reflect the economic benefits and risks of its investments in a manner that is consistent with its level of influence.
In conclusion, the equity method of accounting allows companies to account for their investments in other companies when they have significant influence but not control. It involves recognizing the investing company’s share of the investee’s profits or losses in its income statement and adjusting the carrying value of the investment on its balance sheet. The equity method provides transparency and helps users of financial statements understand the financial impact of the investing company’s investments in other entities.
Equity method of accounting
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RUBRIC
| QUALITY OF RESPONSE |
NO RESPONSE |
POOR / UNSATISFACTORY |
SATISFACTORY |
GOOD |
EXCELLENT |
| Content (worth a maximum of 50% of the total points) |
Zero points: Student failed to submit the final paper. |
20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. |
30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. |
40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. |
50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. |
| Use of Sources (worth a maximum of 20% of the total points). |
Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. |
5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. |
10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. |
15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. |
20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. |
| Grammar (worth maximum of 20% of total points) |
Zero points: Student failed to submit the final paper. |
5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors |
10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors |
15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. |
20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. |
| Structure of the Paper (worth 10% of total points) |
Zero points: Student failed to submit the final paper. |
3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. |
5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper |
7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. |
10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. |
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