Hi guys
Suppose company A goes for a joint venture with company B, under equity method, why does company A takes all the asset of company B instead of owning let’s say just 50% of the asset?
If A & B go into a JV, they would start Company C and then apply the Equity method when doing their financials. Under the Equity method, A would report a 1 line Investment in Non-Current Assets.
Under the equity method, you report your pro-rated share under the investment account on B/S and same with I/S.
Under the acquisition method, you report all assets, liabilities, and income. If you own less than a 100%, you report a minority interest (% of net assets & income that you don’t own).
I think you’re confusing the two.
Or may be I am…it’s amazing how you don’t remember s**t a week and a half after the exam!
In case of a JV arrangment there will be three seperate financial statement including both the existing companies namely A and B and another for the joint venture AB.
In IFRS- proportionate consilidation or equity method can be used, in case of GAAP- Equity method only allowed ( though exceptions exist), This shall be applied by Company A and B for reporting their interest in Joint venture AB and in either case will only show effectively 50% of the net assets of AB in their financials respectively.( and never 100% of the assets)
I think you are confusing the concepts here with some other consolidation concepts, hope I was able to respond to your question