If Net Income is the same under all three methods (including Acquisition) and equity is the same under equity and proportionate consolidation why does the study guide claim ROE is highest under equity lowest under aquisition and in between for proportionate…wouldn’t proportionate method and equity method generate the same ROE since both NI and equity are said to be the same under both?
Under proportinate consolidation method, you would add a portion of the acquired company equity to the acquirer’s equity, thus increasing equity and decreasing ROE. Equity is lower under the equity method because it only consists of the acquirer’s company equity.
Under new IFRS standards, proportionate consolidation isn’t used anymore at a joint venture. Equity method is required. See this thread: http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91330876
They’re including minority interest in equity for proportionate consolidation and full consolidation; that increases equity, reducing ROE.
Without minority interest, equity’s the same under all three methods.
There is no minority interest for proportionate consolidation?!
nope… just in acquisition method
My mistake. You’re correct: no minority interest in proportionate consolidation. (What _ was _ I thinking?)