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Using the equity method in accounting for investments has been called "One Line Consolidation." Why? Is...

Using the equity method in accounting for investments has been called "One Line Consolidation." Why? Is this the best method and why?
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Answer #1

It is because the net effect of retained earnings and net income will be same in equity method, investments has been called "One Line Consolidation.

Moreover, all income and loss adjustments will be recorded in the initial balance of the investors propotionate share of proft and loss and any income or dividend is recorded in the income statement except dividend which is adjusted in the carrying amount of investment. Thus affecting only the Equity Income of the investor.

Equity method is more appropriate because in cost method because when there is one substantial investor having much influence on the investee, there are chances that they influence the activities of the firm in wrong ways to show the improved financials.

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