So I hold 40% significant control stake in a small cap company. The stock is only a few dollars worth
Suddenly the company (due to change in market or their performance or whatever) decides to pay a large dividend.
That large dividend considerably shrinks my reporting of the investment account (as it’s treated as return under equity method).
This continues for the next 2-3 years…Wouldn’t we end up with a situation where we have received more dividends on a small cap stock than the investment account says it’s worth? Because on BS, the investment account was reported at cost.
So, how do we account for income from a 40% stake in a small cap company which has paid back my (original) cost of investment in divs (i.e. the investment account is almost shrunk to zero now)?