Calculations Vs Rules in text

Hi All,

I’ve come across an item set on Intercorporate Investments namely a Consolidation v Prop v Equity question. The question asked which one one would have the highest/lowest/middle leverage.

Thinking about the table in Schweser which lists that ratios are generally better in equity method I decided off the whim without doing any calculations that the D/E would be better under Equity.

I was wrong however, in the answer it stated that the Equity account was greater under consolidation due to the minority interest so D/E was lowest?

In the real exam would we have conflicting scenario’s/tricks like this?

I think you have overlooked Schezer notes.

It says that equity is the same for Equity method and propotionate, but for Acquisition Equity is higher.

However, in Equity method D is lower, so I think the impact is not straightforward. In Acquisity, You have higher Equity + higher Debt (than Equity), it’s hard to tell how that impace numerator and denominator generally.

The table in schweser specifically states that leverage is less under the equity method. So are u saying always calculate in the exam?