What is this? why and where it is used?
equity method is used when the company consodidates balance sheets and income statement. equity is when you only have a portion less than 50% but more than 20 % of a subsidy or another company, you are allowed to add that percentage of that companies earnings and asset/liability to your balance sheet and income statement if you own more you must consolidate (add all balance sheet and income to your consolidated bs, i/s) if it’s less than 20% it’s pro rata only for dividends earned from investment
jo_l Wrote: ------------------------------------------------------- > equity method is used when the a company > consodidates balance sheets. equity is when you > only have a portion less than 50% but more than 20 > % of a subsidy or another company, > you are allowed to add that percentage of that > companies earnings and asset/liability to your > balance sheet and income statement > > if you own more you must consolidate (add all > balance sheet and income to your consolidated bs, > i/s) > > if it’s less than 20% it’s pro rata only for > dividends earned from investment So how is the equity method is different from proportionate consolidation? S
equity method required in GAAP and proportionate consolidation preferred in IFRS. Consolidation used when the investor can control the investee (greater than 50%) equity used when investor can influence the investee (between 20% and 50%) and a proportion of investees net income is added to the investor’s assets… hope this helps.
i just reread that section in schweser notes and it says equity method (under USGAAP) is preferred and is when you just add a proportion of NI of the investee to your assets proportionate method (IFRS) preferred and is what i just wrote above. proportion of NI, Asset, and everything is added to your BS. p318 of schewser 2008 accouting book if you want to read it yourself.
cheers mate!