Equity-method investment

An equity-method investment begins at cost and changes as the investor recognizes its share of the investee's results and other required adjustments. ASC 323-10-35-4 requires recognition of the investor's share of investee earnings or losses in the periods reported by the investee, rather than when dividends are declared.

Build a carrying-amount bridge

Assume an investment costs $600,000 and the investor owns 30 percent. The investee reports $300,000 of net income, so the unadjusted share is $90,000. Supplied basis-difference effects reduce that share by $40,000, leaving $50,000 of equity-method income. A $30,000 share of dividends reduces the investment. A $3,600 share of investee OCI increases the investment and the investor's OCI layer. Ending carrying amount is $623,600:

$600,000 + $50,000 - $30,000 + $3,600 = $623,600

Respect the model boundaries

ASC 323-10-35-5 identifies adjustments similar to those used in consolidation, including basis differences and the investor's share of investee capital and OCI changes. A schedule must also stop at supported limits for losses, impairment, ownership changes, and other interests. It can recompute the bridge after significant influence is established. It cannot establish influence, value acquisition-date assets, or resolve an impairment judgment.