Study On The Abolishment And Existence About Equity Method Of Long-term Equity Investment

From the beginning of the embryonic stage of the capital market in the 1980 s,capital market has undergone several stages of initial shaping,growth and rapid development in China.The scale has been expanded and the products have become increasingly abundant.We have walked on the road to the developed capital market.With the development of China's capital market,corporate and personal investment behavior become increasingly frequent,which promotes economic development greatly in China.It is very important to make accurate accounting measures for investment activities.The most complicated and cumbersome part of investment activities is the accounting treatment of long-term equity investment.The Ministry of Finance has issued the Accounting Standards which is No.2-Long-term Equity Investment and the Accounting Standard which is Business Enterprises No.33-Consolidated Financial Statements,then revised the long-term equity investment standard in 2014.The long-term equity investment should use the equity method when the condition is the significant impact or common control.When a company can control another,should use the cost method to measure subsidiaries.If there is a need to prepare consolidated financial statements,the cost method should be adjusted according to the equity method.Since the introduction of the equity method,it has become a hot topic in the field of accounting theory and practice.Since the last ten years,the accounting treatment and accounting methods of equity method have been changing constantly,which proves the necessity of the study to equity method and attracts everyone's widespread interest.However,there are few researches on the theoretical defects and potential harm of the equity method in China,and there is no systematic and complete literature to study on the question of the abolition of the equity method.According to the equity method,the investor needs to confirm the investment profit or loss,which is based on the net profit or loss realized by the invested company and their own share.From the accounting treatment of the income from investment,the cash dividends or profits distributed by the invested company,or the investment income generated by the selling of financial assets,they are the income which have been implemented.These cash flow can flow into the enterprise,and the amount can be measured reliably.However,the investment income recognized under the equity method belongs to the invested company,when the invested company has not decided to allocate it to investors,the income has not realized,is only the paper profit.The financial management is contrary to the other financial management of the investment income.Therefore,this article will be based on the recognition of investment income using equity method,through combing the domestic and international accounting laws and standards in the development of equity method,discussing on the problems in-depth about the theory of defects and practical problems.Based on the analysis,the author analyzes that abolish using equity method in the individual statements.Based on the comparison of the cost method and equity method when they are used to prepare consolidated financial statements,and analyze equity method for combination deeply,then come to a conclusion that abolish the using of equity method absolutely.