XYZ buys a 24% share in ABC for $80m.ABC's total net profit is $50m and it pays $4m in dividends to XYZ.Using the equity method,the revenue recognised for this investment during the year would be:
A) $4m
B) $12m
C) $50m
D) $0.

Question

Quizplus · Accepted Answer

Under the equity method, the investor records its share of the investee's earnings as revenue. In this case, XYZ's share of ABC's net profit would be 24% x $50m = $12m. The $4m dividend received would not be considered revenue, but a reduction in the investment's carrying value. Therefore, the revenue recognized for this investment during the year would be $12m.

XYZ Buys a 24% Share in ABC for $80m