Why is that, if a company has control over another company, you record the same amount of assets and liabilities on the parent company’s consolidated financial statements regardless of whether they own 50% or 100%? Seems that if a company only owns 50% of another company, recording 100% of its assets and liabilities would inaccurately inflate their balance sheet.
It (full consolidation) does; that’s why you have Minority Interest in the equity section.
Proportional consolidation avoids that problem.
To me it seems that proportional consolidation is far more rational. Why is it that full consolidation is permitted and encouraged? Perhaps I’m just not understanding the intuition here.
You consolidate financial statements when you have control over the subsidiary. I suspect that the rationale is that you control 100% of the subsidiary, so you should consolidate 100% of the subsidiary.
Control typically includes having significant influence over, so you’ll start to see consolidated financials at the 20% mark.
Control and influence are two very different ideas, and you typically do not see consolidated financial statements with 20% ownership; that’s the level at which you will see the equity method used.