The Equity Method

of Accounting for
Investments
 Continued
The Reporting of Investments in Corporate
Equity Securities
In its recent annual report, The Coca-Cola Company describes its
32 percent investment in Coca-Cola FEMSA, a Mexican bottling
company with operations throughout much of Latin America. The
Coca-Cola Company uses the equity method to account for several
of its bottling company investments including Coca-Cola FEMSA.
The Coca-Cola Company states that its
consolidated net income includes the Companys proportionate share
of the net income or loss of these companies. The carrying values of our
equity method investments are increased or decreased by our proportionate
share of the net income or loss and other comprehensive income
(loss) (OCI) of these companies. The carrying values of our equity
method investments are also decreased by dividends we receive from the
investees.
 Continued
Such information is hardly unusual in the business world; corporate
investors frequently acquire ownership shares of both domestic and
foreign businesses. These investments can range from the purchase of
a few shares to the acquisition of 100 percent control. Although
purchases
of corporate equity securities (such as the one made by Coca-
Cola) are not uncommon, they pose a considerable number of financial
reporting issues because a close relationship has been established
without
the investor gaining actual control. These issues are currently addressed
by the equity method. This chapter deals with accounting for
stock investments that fall under the application of this method.