eq vs cons

CFA Level II
#1

Using Gaap; if an owner has an exact 50% ownership, do you use the equity method or consolidation? What about for IFRS?

#2

I think you mean Prop. Consolidation, not Consolidation. GAAP = Equity. Prop Consolidation is NOT allowed. IFRS - Prop. Consolidation is the preferred method. However Equity method is also allowed.

#3

Thanks. I was 95% sure that you could choose either prop consolidation or the equity method for IFRS. I had just forgotten GAAP

#4

if its 50% ownership, you can also use Acquisition method in US GAAP.

#5

Pepp Acquisition method is not one for Minority Active / Minority Passive - which is where the “equity/consol./prop. consol” methods fit in. When you first acquire the company - you use the Acquisition (purchase) method. Subsequent to that you account for it as a Minority Active / Passive investment. So the timing of these two is quite different and would be helpful (really) to think of it like that.