Hi There, Im defintely not an expert in accounting… We know that for Equity Method, Proportionate Method & the Consolidation method, the income statement must be adjusted with the Additional Depreciation of the Identifiable Tangible Assets (or amortization of identifiable intangible assets). However, for the balance sheet, I know that for the equity method we also need to adjust the INVESTMENT A/C e.g Beg Balance + 40% of Net Income of Accquired – 40% of Dividends – Additional Expenses on the Identifiable Tangible Assets But for the proportionate consolidation n the consolidation method, do I need to adjust the balance sheet for the additional expenses?
Adjusting for additional expenses really depends on the recorded value of the investment/consolidation. The Pooling of Interests method requires assets and liabilities to be recorded at book values, so you wouldn’t see additional expenses. The Purchase Method requires net assets to be recorded at fair values. This will result in additional amortization for depreciable assets. Proportionate Consolidation replaces the “Investment in Joint Venture” account (used for equity method and adjusted as you mentioned) with proportionate share of each balance sheet account…line-by-line consolidation. My best guess would be that adjustments are made as necessary to the respective balance sheet accounts under Proportionate Consolidation. Don’t take this as gospel. This is just my best guess. Anyone else want to jump in?
Thanks man. Seems right. If the accquired is recorded at fair market value, the excess identifiable assets over book value would be needed to be depreciated n then adjusted both in B.S n Income statement.
I just want to add that under the equity method all you do is recognize your proportionate share of income (loss) with DR Equity Investment CR Equity in earnings of unconsol. affiliate and dividends received with DR Cash CR Equity Investment There is no adjustment for FMV differences in assets so no additional depreciation or amortization