In Equity method, at initiation, we record investment at cost and report it as non current asset.
In subsequesnt period, proportionate share of the investee’s earnings increase the investment account on balance sheet and is recognized in investor’s Income statement.
My question is why earnings of investee should increase equity income in Income Statement and investment account( i.e. equity asset marked as non current asset on balance sheet) both?
Won’t this be a double counting of the income.?
The earnings which will come through income statement will be added in retained earning in later periods. So won’t the same earnings be accounted twice.? First at the investment account and then at retained earnings.
I know I am missing something very basic here. Thanks in advance.