I don’t think FASB should consider eliminating the three options for accounting for an investment in a
company and create one method for all situations. Dierent method has dierent serve purpose. The
three dierent methods give investees more options when they make varying levels of investments
between dierent types of corporations. To account for the purchase of stock in another company,
the firm must use either the fair value method, the equity method or consolidation. The method
used depends on the percentage of stock ownership and the amount of control a firm has in the
subsidiary.
Using fair value accounting, companies measure and report the value of certain assets and liabilities
on the basis of their actual or estimated fair market prices. It allows investors possess small
percentage of an investee company’s outstanding stock.
Consolidated accounting method is requires a company to use when it owns a controlling stake in
another business. In general, a controlling stake is one that involves ownership of more than 50
percent of a business.
When a company owns a stake that is less than controlling but still allows it to exert signiticant
in,uence over the business, it must use the equity method of accounting. Accounting rules generally
de$ne a controlling stake as between 20 percent and 50 percent of a company.
To sum up, which method to use depends on how much it actually owns and FASB should keep the
current three accounting methods for an investment in a company.