An investor is considered to have substantial influence over an investee if they possess between 20% and 50% of the voting shares.
Equity accounting is used to record and account for equity investments made by a firm when it holds 20% or less of the voting shares of another company. According to the number of shares it owns in the investee company, the investor records the investee's earnings in its accounts.In other words, the initial investment grows in proportion to the earnings earned.
The investee is a subsidiary of the investor since it has the power to control influence if it holds more than 50% of the voting shares.
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