Equity method
The equity method reports an associate as a single investment rather than combining its assets and liabilities line by line. The investment starts at cost and is adjusted for the investor’s share of subsequent profit or loss and other relevant net asset changes. Dividends received reduce the investment’s carrying amount. FA requires understanding of this principle rather than the full complexity of advanced group accounting.
Worked example
A $50,000 investment in a 30% associate increases by $6,000 for a subsequent $20,000 profit and decreases by $1,500 for $5,000 dividends.
Common mistake
Do not add the associate’s individual revenue, assets or liabilities to group totals as though it were a subsidiary.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | FR | Direct | Official assessment-window verification pending |
| ACCA | K1 | Direct | July 2027–August 2028 |
| ACCA | SBR | Direct | Official assessment-window verification pending |
| CIMA | F2 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |