I did some text book question for FSA: intercorporate investment: about equty method, proportionate consolidation and consolidation: I remember it said that under all three method, NI and Equity are the same. But if work through those questions, it looks like the equity and NI could be different. So can we summarize that: if aquire price = book value of equity and there is no goodwill, then NI and Equity will be the same under all three method? I still don’t get how NI will be the same under all three method? Thanks.
NI will be the same under all three methods, although the other numbers that give the answer will be different. In all three cases, you end up adding in the parent’s proportional amount of the subsidiary’s income. Under the EM, this is done via a separate line, under proportional consolidation the ‘line’ is expanded but gives the same number, and under full consolidation the full amount of NI is added in then the NCI percentage gets taken back out. As for the equity being the same, I’m not sure I agree. Under the EM, you don’t add anything to equity directly. Under proportional consolidation, you also don’t add anything to equity directly, but under full consolidation you’ll get a change in equity due to the addition of NCI.