What is Equity Method Investment?
The equity method is the accounting approach used for investments in associates and joint ventures. The investor records the investment at cost initially, then adjusts the carrying amount for its share of the investee’s profit or loss, dividends and other equity movements.
How It Works
- Initially record the investment at cost.
- Add the investor’s share of post-acquisition profit (or loss).
- Subtract dividends received from the investee.
- Adjust for impairment when indicators exist.
Saudi Context
Saudi listed companies present equity-method investments as a single line on the balance sheet, with the share of investee profit shown in the income statement.
Example
Cost SAR 50 million; share of profit SAR 5 million; dividends SAR 2 million. New carrying amount = 50 + 5 – 2 = SAR 53 million.