Question

The calculation of the investee's earnings may be made by either the "treasury stock" method or the "simultaneous equations method. Briefly describe the treasury stock method.

Answer 1

Treasury Stock Method is important from the perspective of a reciprocal interest that happens when subsidiary holds some equity shares of the parent company. Through this method the earnings of the subsidiary company is distributed between the third party shareholders of the parent company and non-controlling equity shareholders of the subsidiary company. This is method is often because it is less complex than the method "simultaneous equations method".    

In practical world, Treasury stock method is more used because this method does not require use of algebra. Both the methods but will derive the same result and ultimate EPS will be same.