Investment method

Investment Method The investment method refers to the accounting techniques used to record and report investments made by one company in another entity. The method chosen depends primarily on the extent of ownership, control, or influence the investor has over the investee company. The goal is to ensure that the financial statements accurately reflect the economic relationship between the two entities. There are three main investment methods used in accounting: 1. Cost Method (or Fair Value Method) When used: Applied when the investor has little or no influence over the investee, usually owning less than 20% of the voting shares. Changes in the market value may be reflected if the investment is classified as “fair value through profit or loss” or “fair value through other comprehensive income.” Example: Company A purchases 5% of the shares of Company B for ₹10 lakh. Company A records the investment at ₹10 lakh and recognizes dividend income only when received.