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CHAPTER 5 Consolidation Subsequent to Acquisition Done LOS Under the equity met acquisition earnings computed mit method, th
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The purchase of shares in another company is reported by purchaser as investment in its books of account. Equity method is one of the method used to report value of investment in books of investor. Under this method the cost of investment is adjusted for share in investee's net income by investor. For example, if purchaser holds 50% of shares in investee and post acquisition net income of investee is $100,000 based on consolidation method, then investor share in net income of investee is $50,000. This net income of $50,000 would be added to the cost of investment reported in the balance sheet of investor. Net income of investee is calculated after making consolidation entries which gives net income as per consolidation method.

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