Here’s what I know (please correct me if I’m wrong):
Investment income from EM only adds to net income; AM adds both revenue and net income
Net income is the same under both methods
Here’s what I’d like to know:
Say I have a 50% ownership in another company, and the scenario is I can go either EM or AM. I consolidate net income proportionally for either method, right? Something like my stake * (net income – dividends).
And for AM, I also consolidate revenue proportionally, correct? And for non-controlling interest, do I consolidate proportionally or consolidate 100%?
Under the equity method you will include 50% of the subsidiary’s net income.
Under the acquisition method you will consolidate 100% of the subsidiary’s revenue and expenses, then deduct 50% of the subsidiary’s net income as minority interest.
Under AM you consolidate all lines in the income statement -revenues, COGS, G&A etc. Net income is same under both methods.
Under AM you don’t consolidate revenue proportionally. Proportionate consolidation is entirely different approach which was allowed for joint ventures (as far as I know it’s not anymore). Under AM you consolidate each line of the BS and IS at 100% and then adjust through non-controling interest.