Partial equity accounting is a calculation between a parent and subsidiary company regarding income from stock/ownership. A parent company looks at its investments in their subsidiary companies and includes any profits or losses into their income statement. More specifically, it is the difference between the price paid for the shares and the book value of those shares of the subsidiary. The net income profit is figured based on the number of shares that are possessed by the parent.

This accounting method operates on an accrual basis where assets are recorded before money physically changes hands. Since partial equity accounting deals in stocks and investments in a company, it is more beneficial to use the accrual accounting because the subsidiary company will not be bought and sold or consolidated frequently, if ever. So as the shares increase or decrease, the change will clearly be reflected so the investor can make better decisions based on that investment.

The partial equity accounting method includes the simple equity accounting method (that factors the payment of dividends) and also adjusts its investment and subsidiary income each period for any change of book value, higher or lower, as the shares, undervalued or overvalued, are used by the subsidiary in it's operating process.

The reporting period for the subsidiary company can vary. Most are quarterly, semi-annually, or annually. The reporting period is normally the same as the parent company's reporting period. However, if requested, a financial report that contains either a complete or condensed set of financial statements for a period shorter than an enterprise's full financial year can be calculated and is referred to as an interim financial report.

The reporting of the shares using partial equity accounting are the difference from beginning price paid to the current market value. However, for the company records, it may be calculated from the previous financial period to current. This figure obviously will show a more recent trend in the value of the investment of the subsidiary company.

The partial equity accounting method may be extended depending on the relationship between the subsidiary and the parent company. The inter-company transactions may be adjusted somewhat differently in the full equity accounting method, depending on the percent ownership and degree of consolidation of the two businesses.


About the author:
Joe Coffee is an entrepreneur for the online marketing firm, Web Shepherd. He has written many articles about accounting, but is not a certified public accountant and any laws or procedures referenced should be verified with a tax professional before they are used.