1. If the investing enterprise does not have control, joint control and significant influence on the invested entity, the long-term equity investment shall be accounted by the cost method. When the book value of an equity investment company adopts the cost method, the book value of long-term equity investment should generally remain unchanged except for additional or recovered investment. The profit or cash dividend declared by the investee is recognized as the current investment income. The investment income confirmed by the investment enterprise is limited to the distribution of accumulated net profit generated by the invested unit after accepting the investment. The part of the profit or cash dividend announced by the investee that exceeds the above amount shall be recovered as the initial investment cost, and the book value of the investment shall be reduced.
2. Dividends under the cost method The current enterprise accounting system stipulates that the profit or cash dividend after the investment year of an enterprise is recognized as investment income or the amount of offsetting the initial investment cost, which can be calculated according to the following companies:
(1) Amount of initial investment cost to be offset = (accumulated profit or cash dividend distributed by the invested company from investment to the end of this year-accumulated net profit and loss realized by the invested company from investment to the end of last year) × shareholding ratio of the investing company-initial investment cost offset by the investing company.
② The investment income to be confirmed = the profit or cash dividend obtained by the investment enterprise in the current year-the amount to be deducted from the initial investment cost. Where the investing enterprise has control, joint control or significant influence on the invested entity, the long-term equity investment shall be accounted by the equity method. When adopting the equity method, the investment enterprise shall, after obtaining the equity investment, adjust the book value of the investment according to the share of the net profit realized in the current year or the net loss of the investee (except the net profit that does not belong to the investment enterprise according to the regulations or articles of association) and confirm it as the current investment profit and loss. An investment enterprise shall calculate its share according to the profits or cash dividends announced by the invested entity, and reduce the book value of the investment accordingly. Enterprises shall regularly check the book value of long-term investments item by item, at least at the end of each year.