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The equity method of accounting recognizes income of the investee company as an increase to the investment account by the percentage owned. Dividends received decrease the investment account, again, by the percentage apportioned. ALSO, for any assets that have been appraised at fair value above their book value, the investment account is reduced by the excess depreciation or amortization from these increased values.
Under the partial equity method, however, the acquirer ignores the effects of the excess depreciation on the investment account. Therefore, the only items that change the investment account would be income earned by the subsidiary and dividends paid.
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