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What is equity method of accounting in the financial statements and do we have any other accounting methods of accounting that we follow?
Equity accounting is only relevant when preparing consolidated accounts if there is also an associate company in the group.
This (and the way it is done) is explained in my free lectures on consolidation.
The lectures are a complete free course and cover everything needed to be able to pass the exam well.
What i understood after watching your lecture is that equity accounting is used to record the profit earned by the investment in another company in SOPL.
For example, a parent company bought associate with a prospect of earning more income from that investment which is considered the other income for the parent company recognized in SOPL?
Lastly, please explain are there any other accounting methods used in ACCA other than equity accounting (if yes please mention few)?
Thank you for your efforts ?
It is only used in respect of any associate companies (and only if consolidated accounts are being produced because there are also subsidiaries). If they are producing consolidated accounts and if there is an associate, the the groups share of the profit from the associate is recorded in the consolidated accounts.
This is not really regarded as an accounting method as such – it is just the way we deal with associates, just as consolidations are the way we deal with subsidiaries. However there are no other methods to worry about 🙂
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