Company Owns 50% Joint Venture - "Assuming Consolidation" ???

Can someone please clarify “assuming consolidation” when answering questions regarding a company © that has a 50% interest in a joint venture and accounts for it using Equity Method??? (JV requires Equity Method under both IFRS and GAAP)

Specific questions I’m referring to in my review are #16-18 page 97 (Book 2 - Intercorpate Investments)

For those that can’t referrence, here are the basic parameters given to use for 16-18:

*joint venture (JVC) A&L have BV=FV

*provided with annual financial results for both (BS and IS)

#16: Assuming CONSOLIDATION, company C’s stockholders equity at end of year is?

****answer is talking about including a “minority interest” - I thought that was solely for Acquisiton method?

#17 Assuming CONSOLIDATION, company C’s total assets at end of year is?

****answer says to include all assets of JVC and remove equity investment in consolidate - Again I thought that was more Acquisiton method or somewhat talked about in consolidating SPE’s #18 Assuming CONSOLIDATION, company C’s COGS and NI at end of year is? ****answer just says to add together COGS and then that NI not affected by consolidation?? I feel like I have a decent understating of Equity and Acquisiton Methods, but this is appearing to me (based) on the answers given to be a hybrid or something I swear wasn’t discussed in text I just reread. What am I missing besides a brain? Many guidance is greatly appreciate!!

To add to above - I got to another question later that also questions about a JV whereby each party owns 50%.

*Answer says that GAAP requires Equity Method BUT that IFRS allows choice btw “proportionate consolidation” or Equity Method (if own 50%)

The whole Kaplan reading says multiple times “IFRS and GAAP require Equity method.” What am I missing here besides the probable obvious answer that Kaplan left it out of text BUT then feels the need to bring up 4 questions on concept?? Rather now than June 7th, but am I just being stupid and completely missed something or is this never mentioned besides in answers to questions??

I think they’re just trying to show you the differences on various line items, as well as ratio analysis, between the two different methods.

Reference the table on page 114. Under IFRS, currently, companies can use consolidation or the equity method until IFRS 9 takes place.

Page 114? I’m assuming that you are referring to the actual CFA curriculum text? sad

I’m riding and dying with Kaplan like Level 1 and hope not to regret it…

Even if it’s a joint venture, if the question said “assuming consolidation” then you consolidate… Don’t go against what the quetion is asking :slight_smile: Now regarding proportionate consolidations (different from acquision method), this was missed in the CFAI, please refer to CFA errata (from candidtate’s resources): two paragraphs were omitted from the CFAI curriculum. It says that only under rare circumstances will joint ventures be allowed to use proportionate consolidation under both IFRS and GAAP. It then goes and explain what proportionate consolidation is. Also, remember that under all three methods (equity, acquisition or proportionate consolidation) net income is the same. Hope that helps. Good luck