What is the partial equity method? How does it differ from the equity method? What are its advantages and disadvantages compared to the equity method?

The partial equity method is a compromise between the initial value method and the equity method. It provides some of the advantages of the equity method but is easier to use. Under the partial equity method, the balance in the investment account is increased by the accrual of the subsidiary's income and decreased when the subsidiary pays dividends. The advantage is that the partial equity method is simpler than the equity method because amortization of excess fair value allocations is not recorded in the parent's internal records. The disadvantage is that the full accrual of the subsidiary's operating results are not reflected in the internal records of the parent and amortizations would then need to be reflected in the consolidation process. Not having the adjustment in the internal records prior to consolidation requires allocating the excess portion of the acquisition-date fair values and calculating amortizations on these allocations at the time of consolidation. In years subsequent to the first year after the date of acquisition, establishment of an appropriate beginning retained earnings figure becomes a significant goal of the consolidation. To convert the parent's beginning of the year retained earnings balance to a full-accrual basis, the prior years' amortizations are entered on the consolidation worksheet, so that all of the subsidiary's operational results for the prior periods are included in the consolidation.