# Equity method

The equity method is an accounting technique under which an investor with significant influence over an associate, or joint control of a joint venture, initially records the investment at cost and then adjusts the carrying amount each period for its share of the investee's profit or loss, reporting the result in a single line of its income statement.<sup>[1](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)</sup> Its common feature is the inclusion in the investor's income statement of the appropriate proportion of the investee's earnings rather than merely the dividends flowing to the investor.<sup>[2](https://canvas.shufe.edu.cn/courses/19861/files/352512/download?download_frd=1)</sup>

| Key fact | Detail |
|---|---|
| Trigger | Significant influence is presumed at 20% or more of voting power under IAS 28 and ASC 323-10; under IAS 28 the presumption is rebutted when contrary evidence clearly demonstrates otherwise, and under ASC 323-10 it may be overcome by predominant contrary evidence. Qualitative indicators can trigger the method below 20%.<sup>[1](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)</sup><sup> • </sup><sup>[3](https://dart.deloitte.com/USDART/home/codification/assets/32x/asc323-10/roadmap-equity-method-investments-jv/chapter-3-applying-equity-method-accounting/3-2-general-presumption)</sup> |
| Presentation | One line on the balance sheet, one line in the income statement, with the investor's share of the investee's OCI recognized in the investor's OCI.<sup>[4](https://kpmg.com/kpmg-us/content/dam/kpmg/frv/pdf/2024/handbook-equity-method-of-accounting-1224.pdf)</sup> |
| Loss floor | Recognition of further losses stops when the share of losses equals or exceeds the interest, unless the investor has obligations or committed support; US GAAP also allows continued absorption when the investee's return to profitability is imminent.<sup>[1](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)</sup><sup> • </sup><sup>[5](https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/equity_method_of_accounting/Equity_method_account/chapter_4/45_losses_in_excess.html)</sup> |
| Goodwill | Goodwill inside the carrying amount is not amortized and is not tested separately; the whole net investment is tested as a single asset under IAS 36.<sup>[1](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)</sup> |
| Scale (Coca-Cola, 2025) | $20,235 million carrying value of equity method investments, $2,031 million equity income, and $102,800 million of investee net operating revenues.<sup>[6](https://www.sec.gov/Archives/edgar/data/21344/000162828026010047/R39.htm)</sup> |
| Fair-value gap | Coca-Cola's publicly traded equity method investments had a fair value of $34,286 million against a $13,999 million carrying value at December 31, 2025, a $20,287 million difference.<sup>[6](https://www.sec.gov/Archives/edgar/data/21344/000162828026010047/R39.htm)</sup> |
| Reform | The IASB expects to issue a revised IAS 28 in the first half of 2027, effective 1 January 2029; the FASB added a targeted-improvements project in November 2025.<sup>[7](https://www.ifrs.org/projects/work-plan/equity-method/)</sup><sup> • </sup><sup>[8](https://www.fasb.org/projects/current-projects/equity-method-of-accounting:-targeted-improvements-423332)</sup> |

## What the equity method is

Under IAS 28, the investment in an associate or joint venture is recognized at cost on initial recognition, and the carrying amount is increased or decreased to recognize the investor's share of the investee's profit or loss after the acquisition date; distributions received reduce the carrying amount.<sup>[1](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)</sup> The investor's share of the investee's other comprehensive income is recognized in the investor's own OCI.<sup>[4](https://kpmg.com/kpmg-us/content/dam/kpmg/frv/pdf/2024/handbook-equity-method-of-accounting-1224.pdf)</sup>

**A hybrid method.** The Japanese Accounting Standards Board describes the equity method as neither pure one-line consolidation nor a pure measurement method but a hybrid of the two, because significant influence or joint control does not constitute control yet warrants accounting closer to consolidation than a passive stake.<sup>[9](https://www.asb-j.jp/en/wp-content/uploads/sites/5/20210903_e.pdf)</sup> Spain's ICAC reaches a similar view, noting that standard-setters have not expressly stated their position on the method's conceptual nature.<sup>[10](https://www.icac.gob.es/sites/default/files/2025-10/ESTUDIO%203C%20CONSOLIDACION_ingl_accesibilidad.pdf)</sup>

## When it applies: significant influence

IAS 28 presumes that an entity holding, directly or indirectly, 20% or more of the investee's voting power has significant influence, and that a holder of less than 20% does not, unless clearly demonstrated otherwise.<sup>[1](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)</sup> ASC 323-10-15-8 establishes the same presumption for US GAAP, counting only currently outstanding securities with present voting privileges; potential voting rights such as options and convertible debt are disregarded.<sup>[3](https://dart.deloitte.com/USDART/home/codification/assets/32x/asc323-10/roadmap-equity-method-investments-jv/chapter-3-applying-equity-method-accounting/3-2-general-presumption)</sup> Nobes traces the internationally agreed 20% threshold and concludes that its emergence seems to have been accidental.<sup>[2](https://canvas.shufe.edu.cn/courses/19861/files/352512/download?download_frd=1)</sup>

**Qualitative indicators.** Significant influence is evidenced by board representation, participation in policy-making, material transactions between investor and investee, interchange of managerial personnel, and provision of essential technical information.<sup>[1](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)</sup> Under US GAAP, contrary evidence such as failed attempts to obtain board representation or litigation by the investee can overcome the presumption, while an investor above 20% cannot rebut it merely by saying it has not historically exercised influence and does not intend to.<sup>[11](https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/equity_method_of_accounting/Equity_method_account/chapter_2/21_significant_influence_presumption.html)</sup> Indirect holdings count: a parent controlling two subsidiaries each holding 10% of an investee is treated as holding a 20% voting interest, and an investor with significant influence over an entity that controls a third company has significant influence over that company even with only a 15% direct voting interest.<sup>[3](https://dart.deloitte.com/USDART/home/codification/assets/32x/asc323-10/roadmap-equity-method-investments-jv/chapter-3-applying-equity-method-accounting/3-2-general-presumption)</sup>

**Lower thresholds for partnerships.** For limited partnerships and LLCs with separate capital accounts, the SEC has viewed interests above 3% to 5% as "more than minor" and thus subject to the equity method, and the equity method is mandatory above 5% without an indicators test; below 3%, investments are typically accounted for at fair value under ASC 321.<sup>[3](https://dart.deloitte.com/USDART/home/codification/assets/32x/asc323-10/roadmap-equity-method-investments-jv/chapter-3-applying-equity-method-accounting/3-2-general-presumption)</sup><sup> • </sup><sup>[12](https://www.deloitte.com/us/en/services/audit-assurance/articles/us-aers-a-roadmap-to-accounting-for-equity-method-investments-and-joint-ventures.html)</sup> All joint ventures in which the investor shares joint control are accounted for under the equity method regardless of ownership percentage.<sup>[3](https://dart.deloitte.com/USDART/home/codification/assets/32x/asc323-10/roadmap-equity-method-investments-jv/chapter-3-applying-equity-method-accounting/3-2-general-presumption)</sup>

**Switching in and out.** An investor begins applying the equity method on the date it obtains the requisite degree of influence, even if that influence is expected to be temporary.<sup>[4](https://kpmg.com/kpmg-us/content/dam/kpmg/frv/pdf/2024/handbook-equity-method-of-accounting-1224.pdf)</sup> When significant influence is lost, the investor stops applying the method prospectively and accounts for the retained interest under ASC 321, with the carrying amount becoming the new cost basis.<sup>[12](https://www.deloitte.com/us/en/services/audit-assurance/articles/us-aers-a-roadmap-to-accounting-for-equity-method-investments-and-joint-ventures.html)</sup> Loss of influence can occur without any change in ownership levels, for example when the associate becomes subject to the control of a government, court, administrator, or regulator.<sup>[1](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)</sup>

## How the mechanics work

Equity method investments are recorded initially at cost including transaction costs, and basis differences are accounted for as if the investee were a consolidated subsidiary; dividends received generally reduce the carrying amount.<sup>[13](https://www.ey.com/content/dam/ey-unified-site/ey-com/en-us/technical/accountinglink/documents/ey-frd02230-161us-06-22-2026.pdf)</sup> The basis difference is a notional purchase price allocation: at December 31, 2024, Coca-Cola's investments in its equity method investees exceeded its proportionate share of the investees' net assets by $7,791 million, a difference the company states is not amortized.<sup>[14](https://www.sec.gov/Archives/edgar/data/21344/000002134425000011/R15.htm)</sup>

**Goodwill and step-ups.** Goodwill included in the carrying amount is not separately recognized, so it is not tested for impairment separately under the IAS 36 goodwill requirements; the entire carrying amount of the net investment is tested as a single asset.<sup>[1](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)</sup> On a step acquisition where the investee is a business, the investor remeasures its previously held equity interest at fair value as of the acquisition date and recognizes any gain or loss in earnings, adding the carrying value of the existing investment to the cost of the additional investment to determine the new basis.<sup>[12](https://www.deloitte.com/us/en/services/audit-assurance/articles/us-aers-a-roadmap-to-accounting-for-equity-method-investments-and-joint-ventures.html)</sup><sup> • </sup><sup>[13](https://www.ey.com/content/dam/ey-unified-site/ey-com/en-us/technical/accountinglink/documents/ey-frd02230-161us-06-22-2026.pdf)</sup> Unrealised gains from downstream transactions and dividends are among the amounts that may exceed the carrying amount of the interest and require elimination adjustments under IAS 28.<sup>[9](https://www.asb-j.jp/en/wp-content/uploads/sites/5/20210903_e.pdf)</sup>

**The zero floor.** Under ASC 323-10-35-20, an investor ordinarily discontinues applying the equity method when the investment and net advances are reduced to zero, and provides for additional losses only if it has guaranteed the investee's obligations or is otherwise committed to further financial support.<sup>[5](https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/equity_method_of_accounting/Equity_method_account/chapter_4/45_losses_in_excess.html)</sup> When the common-stock basis is exhausted, losses continue against other investments in the investee, such as preferred stock and then debt, applied in reverse order of seniority, that is, priority in liquidation.<sup>[1](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)</sup><sup> • </sup><sup>[5](https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/equity_method_of_accounting/Equity_method_account/chapter_4/45_losses_in_excess.html)</sup> Investors track unrecognized losses in memo accounts and resume applying the equity method only after their share of the investee's subsequent net income equals the share of losses not recognized while the method was suspended; the investee's shareholders' deficit need not be eliminated.<sup>[5](https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/equity_method_of_accounting/Equity_method_account/chapter_4/45_losses_in_excess.html)</sup><sup> • </sup><sup>[17](https://dart.deloitte.com/USDART/home/codification/assets/32x/asc323-10/roadmap-equity-method-investments-jv/chapter-5-subsequent-measurement/5-2-equity-method-losses-that)</sup>

## By the numbers: Coca-Cola

As of December 31, 2024 it owned 19% of Coca-Cola Europacific Partners, 21% of [Monster Beverage](https://www.edgepedia.org/monster-beverage), 20% of AC Bebidas, 28% of [Coca-Cola FEMSA](https://www.edgepedia.org/coca-cola-femsa), 22% of Coca-Cola HBC, and 19% of Coca-Cola Bottlers Japan Holdings, all accounted for as equity method investees.<sup>[14](https://www.sec.gov/Archives/edgar/data/21344/000002134425000011/R15.htm)</sup> In 2025 those investees reported aggregate net operating revenues of $102,800 million, up from $99,043 million in 2024, while Coca-Cola's equity income, net, rose to $2,031 million from $1,770 million, and its equity method investments totaled $20,235 million at year end.<sup>[6](https://www.sec.gov/Archives/edgar/data/21344/000162828026010047/R39.htm)</sup> Dividends received from equity method investees were $968 million in 2024, and net sales to them were $18,278 million, showing how much real business flows through relationships the balance sheet compresses into one line.<sup>[14](https://www.sec.gov/Archives/edgar/data/21344/000002134425000011/R15.htm)</sup>

**The fair-value gap.** At December 31, 2025, the fair value of Coca-Cola's publicly traded equity method investments was $34,286 million against a $13,999 million carrying value, a $20,287 million difference, of which $10,066 million related to Monster Beverage alone; a year earlier the gap was $15,945 million.<sup>[6](https://www.sec.gov/Archives/edgar/data/21344/000162828026010047/R39.htm)</sup><sup> • </sup><sup>[14](https://www.sec.gov/Archives/edgar/data/21344/000002134425000011/R15.htm)</sup>

## How it compares with consolidation and fair value

The equity method is a one-line presentation: the investment appears in one line on the balance sheet and its earnings effect in one line in the income statement, so the investee's individual revenues and expenses are not presented line by line in the investor's primary statements.<sup>[4](https://kpmg.com/kpmg-us/content/dam/kpmg/frv/pdf/2024/handbook-equity-method-of-accounting-1224.pdf)</sup> An investor electing the fair value option for an equity method investment presents it at fair value each period with changes reported in the income statement, and the election is irrevocable absent a qualifying event.<sup>[13](https://www.ey.com/content/dam/ey-unified-site/ey-com/en-us/technical/accountinglink/documents/ey-frd02230-161us-06-22-2026.pdf)</sup>

**Proportionate consolidation.** IFRS 11, issued in May 2011 and replacing IAS 31, broadened the equity method's scope to joint ventures and eliminated the [proportionate consolidation](https://www.edgepedia.org/proportionate-consolidation) option previously allowed under IAS 31.<sup>[10](https://www.icac.gob.es/sites/default/files/2025-10/ESTUDIO%203C%20CONSOLIDACION_ingl_accesibilidad.pdf)</sup> Historically, while the IASB recommended and Canada required proportionate consolidation for joint venture investments, US GAAP required the equity method.<sup>[15](https://www.sciencedirect.com/science/article/pii/S1057521907000427)</sup>

## IFRS vs US GAAP differences

**Loss absorption.** Under IFRS, the investor recognizes its share of losses until the net investment, comprising equity plus long-term interests, is reduced to zero, with further losses allocated to long-term interests in reverse order of seniority after applying [IFRS 9](https://www.edgepedia.org/ifrs-9); the investor does not recognize losses in excess of the carrying value unless it has legal or constructive obligations, whereas under full consolidation the parent absorbs losses beyond the carrying value of its investment in the subsidiary.<sup>[16](https://kpmg.com/us/en/articles/2026/impairment-equity-method-investments.html)</sup><sup> • </sup><sup>[9](https://www.asb-j.jp/en/wp-content/uploads/sites/5/20210903_e.pdf)</sup> US GAAP differs in two directions: additional losses may be recognized if the investee's imminent return to profitable operations appears assured, a judgment-based rule with no IFRS counterpart, while IFRS requires an obligation to fund the investee or payments made on its behalf.<sup>[5](https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/equity_method_of_accounting/Equity_method_account/chapter_4/45_losses_in_excess.html)</sup><sup> • </sup><sup>[16](https://kpmg.com/us/en/articles/2026/impairment-equity-method-investments.html)</sup> Sequencing also differs: under US GAAP the CECL guidance for long-term interests is applied only after the equity-method loss-absorption and impairment requirements, whereas IFRS applies IFRS 9 to long-term interests independently.<sup>[16](https://kpmg.com/us/en/articles/2026/impairment-equity-method-investments.html)</sup>

**Impairment.** Under IFRS the net investment is tested as one single asset under IAS 36 by comparing carrying amount to recoverable amount, and impairment losses can be reversed; under US GAAP an impairment loss is recognized only if it is other than temporary, is measured based on the investee's fair value, and cannot be reversed.<sup>[1](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)</sup><sup> • </sup><sup>[16](https://kpmg.com/us/en/articles/2026/impairment-equity-method-investments.html)</sup>

## Recent developments

**IASB.** The IASB published Exposure Draft Equity Method of Accounting, IAS 28 (revised 202x), in September 2024, completed deliberations of the feedback at its September 2026 meeting, and agreed to begin balloting the revised standard.<sup>[7](https://www.ifrs.org/projects/work-plan/equity-method/)</sup> It expects to issue the revised IAS 28 in the first half of 2027 with an effective date of 1 January 2029, including improved disclosures to help users assess the effect of an investor's interest in associates and joint ventures; it also decided to withdraw a proposed disclosure of gains or losses from downstream transactions with subsidiaries accounted for using the equity method, requiring instead disclosure of the accounting policy for such gains or losses in separate financial statements.<sup>[7](https://www.ifrs.org/projects/work-plan/equity-method/)</sup>

**FASB.** On November 12, 2025, the FASB added a project to its technical agenda to improve the operability of equity method accounting, responding to its 2025 Invitation to Comment.<sup>[8](https://www.fasb.org/projects/current-projects/equity-method-of-accounting:-targeted-improvements-423332)</sup> At its May 13, 2026 meeting the Board decided to require a single significant-influence threshold for applying the equity method regardless of entity type, and to change the 20% presumptive threshold by removing the presumption that an entity holding less than 20% does not have significant influence; it also decided to amend the board-of-directors indicator to cover functionally equivalent governing bodies, to add that a noncontrolling general partner has significant influence, and to move non-industry-specific guidance from Subtopic 970-323 into Subtopic 323-10.<sup>[8](https://www.fasb.org/projects/current-projects/equity-method-of-accounting:-targeted-improvements-423332)</sup> A proposed Accounting Standards Update will have a 75-day comment period.<sup>[8](https://www.fasb.org/projects/current-projects/equity-method-of-accounting:-targeted-improvements-423332)</sup> Separately, ASU 2023-02, issued in 2023, expanded the proportional amortization method to tax equity investments beyond low-income housing tax credits, effective for public business entities for fiscal years beginning after December 15, 2023.<sup>[12](https://www.deloitte.com/us/en/services/audit-assurance/articles/us-aers-a-roadmap-to-accounting-for-equity-method-investments-and-joint-ventures.html)</sup>

## References

1. [IAS 28 Investments in Associates and Joint Ventures, IFRS Foundation (2023 issued)](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2023/issued/ias28.html)
2. [Nobes, C. (2002). An Analysis of the International Development of the Equity Method. Abacus 38(1)](https://canvas.shufe.edu.cn/courses/19861/files/352512/download?download_frd=1)
3. [Deloitte DART Roadmap, Chapter 3.2, General Presumption (ASC 323-10)](https://dart.deloitte.com/USDART/home/codification/assets/32x/asc323-10/roadmap-equity-method-investments-jv/chapter-3-applying-equity-method-accounting/3-2-general-presumption)
4. [KPMG Handbook: Equity method of accounting (December 2024)](https://kpmg.com/kpmg-us/content/dam/kpmg/frv/pdf/2024/handbook-equity-method-of-accounting-1224.pdf)
5. [PwC Viewpoint, Equity Method guide, 4.5 Losses in excess of investment carrying amount](https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/equity_method_of_accounting/Equity_method_account/chapter_4/45_losses_in_excess.html)
6. [The Coca-Cola Company 2025 Form 10-K, Equity Method Investments tables, SEC EDGAR](https://www.sec.gov/Archives/edgar/data/21344/000162828026010047/R39.htm)
7. [IFRS, Equity Method project page](https://www.ifrs.org/projects/work-plan/equity-method/)
8. [FASB Project: Equity Method of Accounting, Targeted Improvements](https://www.fasb.org/projects/current-projects/equity-method-of-accounting:-targeted-improvements-423332)
9. [Japanese Accounting Standards Board, Perspectives on the Equity Method of Accounting (September 2021)](https://www.asb-j.jp/en/wp-content/uploads/sites/5/20210903_e.pdf)
10. [ICAC (Spain) Study 3C: The Equity Method of Accounting in Consolidated Financial Statements (2025)](https://www.icac.gob.es/sites/default/files/2025-10/ESTUDIO%203C%20CONSOLIDACION_ingl_accesibilidad.pdf)
11. [PwC Viewpoint, 2.1 Significant influence presumption](https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/equity_method_of_accounting/Equity_method_account/chapter_2/21_significant_influence_presumption.html)
12. [Deloitte, A Roadmap to Accounting for Equity Method Investments and Joint Ventures](https://www.deloitte.com/us/en/services/audit-assurance/articles/us-aers-a-roadmap-to-accounting-for-equity-method-investments-and-joint-ventures.html)
13. [EY Financial Reporting Developments: Equity method investments and joint ventures (June 2026)](https://www.ey.com/content/dam/ey-unified-site/ey-com/en-us/technical/accountinglink/documents/ey-frd02230-161us-06-22-2026.pdf)
14. [The Coca-Cola Company 2024 Form 10-K, Equity Method Investments note, SEC EDGAR](https://www.sec.gov/Archives/edgar/data/21344/000002134425000011/R15.htm)
15. [Bauman, M. (2007). Proportionate consolidation versus the equity method. International Review of Financial Analysis](https://www.sciencedirect.com/science/article/pii/S1057521907000427)
16. [KPMG: Impairment of equity method investments, navigating IAS 28 and IFRS 9](https://kpmg.com/us/en/articles/2026/impairment-equity-method-investments.html)
17. [DART on Research Portal](https://dart.deloitte.com/USDART/home/codification/assets/32x/asc323-10/roadmap-equity-method-investments-jv/chapter-5-subsequent-measurement/5-2-equity-method-losses-that)

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*Topic: Encyclopedia › Society and history › Economics and business › Finance › Financial accounting concepts*

*Initially written Oct 10, 2026 · Edited: Oct 11, 2026; Oct 15, 2026*

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