Equity-method distribution cash flow

An equity-method distribution can be a return on investment, a return of investment, or both. ASC 230-10-45-21D requires an accounting-policy election between the cumulative-earnings and nature-of-distribution approaches.

Apply the elected approach

Under the cumulative-earnings approach, compare cumulative distributions with cumulative equity-method earnings, adjusted as required for basis differences. Returns on investment are operating inflows. The current-period excess that is a return of investment is an investing inflow.

Under the nature approach, use information about the investee activities that generated the distribution. Classify a return on investment as operating and a return of investment as investing. If the required information is unavailable for an investee, the paragraph requires the stated change in approach and related accounting-policy treatment; do not guess the distribution's nature.

Keep classification from changing the investment ledger

Retain the investee, policy, cumulative earnings, basis-difference adjustments, prior and current distributions, supported nature evidence, and resulting layers. Reconcile the cash receipt to the bank and the distribution to the equity-method rollforward.

The cash-flow policy does not change equity-method income or the investment carrying amount. It uses those records to classify cash. A dividend label alone does not prove that the entire receipt is operating.