Long-term equity investment of subsidiaries by investment enterprises is accounted by cost method, and consolidated financial statements are adjusted according to equity method. Long-term equity investments that do not have the same control or significant influence on the investee, have no quotation in the active market and their fair value cannot be reliably measured shall be subject to cost accounting. The equity law applies to joint ventures and joint ventures with significant influence.
When using the cost method, the book value of long-term equity investment should generally remain unchanged except for additional or recovered investment. The profit or cash dividend declared by the investee is recognized as the current investment income. The investment income confirmed by the investment enterprise is limited to the distribution of accumulated net profit generated by the invested unit after accepting the investment. The part of the profit or cash dividend announced by the investee that exceeds the above amount shall be recovered as the initial investment cost, and the book value of the investment shall be reduced.
When adopting the equity method, the investing enterprise shall, after obtaining the equity investment, adjust the book value of the investment according to the share of the net profit or net loss (except the net profit that does not belong to the investing enterprise according to the regulations or articles of association) in the invested entity, and confirm it as the current investment profit and loss. An investment enterprise shall calculate its share according to the profits or cash dividends announced by the invested entity, and reduce the book value of the investment accordingly.
Long-term equity investment refers to obtaining the shares of the invested unit through investment. An enterprise's equity investment in other units is usually held for a long time, with the purpose of controlling the investee through equity investment, or exerting a significant influence on the investee, or establishing a close relationship with the investee in order to spread business risks. Equity investment usually has the characteristics of large investment, long investment cycle, high risk and great benefits to enterprises.
Legal basis:
Regulations on financial accounting reports of enterprises
Fifteenth financial statements should at least explain the following:
(a) the basic situation of the production and operation of the enterprise;
(2) Profit realization and distribution;
(three) the increase or decrease of funds and working capital;
(four) other matters that have a significant impact on the financial situation, operating results and cash flow of the enterprise.