How do we calculate NI of the parent company under proportionate consolidation?
I gather from an example that 50% of subsidiary’s NI does not have to be added, but why?
(Consolidation is killing me…)
Proportionate consolidation has no longer been used so much, equity method is used instead. Parent consolidate exact 50% B/S and P/L positions in joint venture.
Yes but I see practice questions about it, and I’ve just encountered a Schweser (2015) question where it says proportionate consolidation does not affect the NI of the parent. I.e. the NI of the combined entity = that of the parent.
I would have thought to add 50% of the JV’s NI.
In case of consolidation (also proportional consolidation) an entity prepares the separated FS and consolidated FS. In separated FS NI is not affected by impact of investment in associate but such investments must be fully disclosed in Notes to FS. Financial statements in which the equity method is applied are not separate financial statements.
Net income is the same under the equity method, proportionate consolidation, and full consolidation.
Thanks very much both.
This is what I myself figured out, in this case there must be a mistake in Schweser (2015) book.
My pleasure.