Question

Both the investment in subsidiary and the subsidiary's retained earnings are eliminated during the consolidation process...

Both the investment in subsidiary and the subsidiary's retained earnings are eliminated during the consolidation process when the equity method is used.

True

False

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Answer #1

True.

Generally in equity method there is no consolidation and elimination process. Instead the investor will report proportionare share of investee, as an equity investment at cost. Any profit from the investee will increase upto the share in it to investor account by an amount proportionate to share in investee. If any amount received like by way of dividend or other will be adjusted to this account.

This is different from consolidation method where ownership is fully owned unlike subsidiary or associate.

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