Long-term equity investment accounting processing

Initial Recognition of Investment: When a company purchases shares of another company, the investment cost is recognized as an asset on the balance sheet in the long-term equity investment account. This amount usually includes the cash payment for the shares and other directly related expenses.

Equity Method Recognition: If the investor holds a certain percentage of equity in the invested company (usually 20% or more), the equity method is applied for accounting treatment. Under the equity method, the investor recognizes its share of the net assets' changes in the invested company as a proportionate share of profit or loss.

Dividend Income: If the invested company declares dividends, the investor receives a proportionate share of the dividends based on its ownership percentage. Dividend income is typically recorded in the investor's income statement.

Impairment of Assets: If the net assets of the invested company are impaired, the investor may need to account for impairment of its long-term equity investment. This often involves testing the net assets to ensure that their carrying value does not exceed their recoverable amount.

Adjustment of Investment Carrying Value: If the investor increases or decreases its equity stake in the invested company, an adjustment is required for the carrying value of its long-term equity investment. This may involve recalculating based on the new purchase value or the decreased equity value.

Long-Term Holding: Long-term equity investments are typically considered as long-term assets, and their value is usually listed as long-term assets on the balance sheet. Investors should periodically assess the recoverable amount of their long-term equity investments based on the company's accounting policies.

Reporting and Disclosure: Companies need to transparently disclose their long-term equity investments in financial reports, including basic information about the investment company, the ownership percentage, and a description of the business of the invested company. Additionally, the recognition of profit or loss under the equity method needs to be disclosed.

It's important to note that different countries and regions may have different accounting principles and regulations that can impact the accounting treatment of long-term equity investments.