Hi,
I was looking at a Kaplan question earlier and the answer stated that if you consolidate an SPE, assets will increase but there will be no effect on net income or equity. I don’t understand this, surely is the SPE is in a profitmaking position and has positive net assets, then the net income and equity position of the parent should increase?
Thanks,
It’s the same with all consolidations: net income under consolidation is the same as net income under the equity method, and equity under consolidation is the same as equity under the equity method. Revenue (likely) increases, expenses (likely) increase, assets and liabilities increase, but the net effects are zero.
But what about minority interest on the balance sheet? Under the equity method, this isn’t reported but the balance sheet under consolidation would be higher because of the recognition of minority interest.