The consolidation method results in:
A) same equity as the cost method.
B) same net income as the equity method but different shareholders’ equity.
C) same net income and shareholders’ equity as the equity method.
Now, according to Qbank, correct answer is B) however, if you check the book it literally says “Equity method and proportionate consolidation report the same equity” (book 2 page 30). I dont know if I’am missing something very obvious or if its an errata. Anyone that can shed a bit of light would be really appreciated.
Thanks
Equity is the same if you don’t include minority interest, but different if you do (and ownership is less than 100%).
When I was in university learning accounting, there was a third section on the right side of the balance sheet, between Liabilities and Equity, known as the mezzanine; that’s where you put minority interest in a consolidation. At that time, you always got the same equity under the equity method and under consolidation. Sometime between then and now the rules changed, they got rid of the mezzanine, they stuck minority interest into Equity, and ruined everything.
You are right, when I read the word “consolidation” I instantly thought of partial consolidation method (which doesn’t require minority interest) instead of the acquisition method (AKA consolidation). Thanks a lot