The main difference relates to the amount of ownership the company has in another entity. If the company owns less than 20% of the outstanding shares for the company they invested in, then the fair value method (i.e., cost method) is used. If the company owns between 20% to 50% of the outstanding shares, then the equity method is used.
There are exceptions where a company can own less than 20% but have significant influence. In this case, the equity method will be used. The company can also own greater than 20% but not have significant influence. In This case, the fair value method can be elected.
Anything over 50% requires consolidation.
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