Equity Method Schweser Question increase, investment, acquired, balance, company

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Question 46 in Schweser Exam 3, Morning Session has an equity method problem where they compute equity income by multiplying acquired company’s earnings by pro-rata portion owned; that’s fine. But then they subtract depreciation due to the increase in PP&E over fair value of PP&E (fairvalue was 1.2 million; balance sheet says 2 million now).
Why do they do this? I thought you just put the investment as a long-term asset at cost on the balance sheet plus earnings minus dividends, and you put the pro-rata earnings on the income statement as “equity income.” Is this even right or am I bass ackwards?