Equity Method and Dividends

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Can someone tell me why we subtract the dividends received when we calculate the investment value in an affiliate?
 
Dividends received are considered a return of investment, not a return on investment.
Why? Because that’s what accountants decided, that’s why.
 
i think i got it.
I will use the Retained Earnings to calculate the investment value
 
lets say A owns 20% of B . The purchase price of B was $100. B made NI of $40 and paid $10 in dividends (RE=$30)
Investment value in A’s financial statement is $100$ +0.2*$30=$106
 
Onda wrote: lets say A owns 20% of B . The purchase price of B was $100. B made NI of $40 and paid $10 in dividends (RE=$30)
Investment value in A’s financial statement is $100$ +0.2*$30=$106
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$30 is not (necessarily) B’s Retained Earnings.
It might be B’s change in RE.
 
yes, you are right because the actual retained earnings include all the previous earnings.
 
Onda wrote: yes, you are right because the actual retained earnings include all the previous earnings.
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Exactly!
That’s why I was puzzled when you said you’d use RE.
 
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