This audio will introduce you when investments are accounted using equity method and, when investments are accounted for cost adjusted for fair value method.
Ownership of more than 20% or more of the outstanding stock will result in an ability of an investor to exercise significant influence, over the operating and financial policies of the investee. If an investor is able to exercise significant influence over the operating and financial policies of the investee, equity method will be used to record such investments. If investor’s ability to exercise significant influence over the operating and financial policies of the investee is temporary, cost adjusted for fair value method will be used to record such investments. Cost adjusted for fair value method will also be used to account for investments in a company operating in a foreign company, which has severe restrictions on the operations, and on the transfer of monies outside the country. Also, cost adjusted for fair value method will be used to account for investments of more than 20%, that do not result in significant influence.