Equity Method and Dividends

Can someone tell me why we subtract the dividends received when we calculate the investment value in an affiliate?

Dividends received are considered a return _ of _ investment, not a return on investment.

Why? Because that’s what accountants decided, that’s why.

i think i got it.

I will use the Retained Earnings to calculate the investment value

How, exactly?

lets say A owns 20% of B . The purchase price of B was $100. B made NI of $40 and paid $10 in dividends (RE=$30)

Investment value in A’s financial statement is 100 +0.2*$30=$106

$30 is not (necessarily) B’s Retained Earnings.

It might be B’s _ change in _ RE.

yes, you are right because the actual retained earnings include all the previous earnings.


That’s why I was puzzled when you said you’d use RE.

gotcha. Thank you!