omistusmenetelmää

Omistusmenetelmää, often translated as the equity method, is an accounting standard used to report investments in another company's stock. It applies when an investor has significant influence over the investee, typically when the investor owns between 20% and 50% of the voting stock. Under the equity method, the investment is initially recorded at its cost. As the investee company reports profits or losses, the investor's proportionate share of those earnings or losses is added to or subtracted from the carrying value of the investment on the investor's balance sheet. Similarly, if the investee pays dividends, the investor's share of the dividends reduces the carrying value of the investment. This method reflects the economic reality that the investor benefits from or is affected by the investee's financial performance, even without direct control. When the investor's share of losses exceeds the carrying amount of the investment, further losses are typically not recognized unless the investor has guaranteed additional obligations or made further investments. The equity method aims to provide a more accurate representation of the investment's value and its impact on the investor's overall financial position compared to simply recording the initial purchase price.