An advantage of the equity method over the fair value method is that it prevents an investor from manipulating its own income by exerting influence over the amount and timing of investee dividends.

Question

Quizplus · Accepted Answer

The equity method takes into account the investor's share of the investee's earnings and dividends, whereas the fair value method only considers changes in the investee's fair value. Therefore, with the equity method, an investor cannot manipulate its own income by influencing the timing or amount of dividends from the investee.

An Advantage of the Equity Method Over the Fair Value