Key Difference(s)between the Cost Method and the Equity Method of Accounting

question 12

Multiple Choice

Key difference(s) between the cost method and the equity method of accounting for investments include that under the equity methoD.

• A) The investment is not initially recorded at cost in the investor's accounts.
• B) Dividends from pre-acquisition profits are treated as revenue in the investor's accounts.
• C) The investment is retained at cost in the consolidated accounts.
• D) Changes in the fair value of the investment are recognised and deferred to an asset revaluation reserve.
• E) None of the given answers.

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Definitions:

Mutually Exclusive

Situations or options that cannot occur or be chosen at the same time.

Projects

Specific tasks or programs undertaken to achieve a goal, often with a defined scope, timeline, and resources.

Average Accounting Return

A financial metric that calculates the average profits earned on investments relative to the book value of assets over a certain period.