hey everyone, can somoene summarize the differences for the above methods for me? im still a little lost i know that under equity carrying value = initial investment + ownership %*(NI-Divs) on the BS how is the IS effected in equity? same with consolidation how is BS and IS effected?
Under EQUITY = I think IS is only affected by “net income” which is only affected by the % of earnings of the sub. Just add it to the parents. Under CONSOLIDATOIN = all accounts on balance sheet are just added together. If the parent does not own 100% of the sub then you have to adjust equity portion by a (1-%)* EQ of sub called MINORITY INTEREST. Income statement i think everything is just combined too.
Not comprehensive, but a few key bullets I like to remember related to this … 1. NI and Equity are the same under both. 2. Equity: only CF between the parent and target are reported as CF to the parent. 3. Consolidation: parent CF *excludes* those from the target. Another note on consolidation is that you combine everything and leave minority interest out. You’ll have to dig in deeper for FS and ratio effects. Good luck.
really you odn’t combine cashflows under consolidation? why?
under equity method: B/S: %(NI-DIV) I/S: %NI CF/S: %DIV