Proportionate Consolidate vs. Acquisition Method

CFA Level II
#1

Is the difference here being Proportianate consolidation is used for Joint Ventures (in place of Equity Method)?

Seems like everything else between Proportinate consolidate and Acquition Method is the same but PLEASE correct me if i’m wrong.

thanks!

#2

IFRS : can use Equity Method OR Proportionate method for Joint Ventures

US GAAP : can only use equity method

Hope it helps !

#3

Proportionate consolidation is gone now, correct? As of 1/1/2013 IFRS and GAAP both require equity method for joint ventures.

#4

Oh, I guess the curriculum says the deadline for that change was pushed back to 1/1/15. Guess that means proportionate consolidation is still allowed. Glad I went back and reread that.

#5

It’s also worth noting proportionate consolidation can be used in special situations, even if it’s elimination is pushed out (I didn’t know that frankly)

i still don’t quite grasp what the difference is between this and the acquisition method. Does anything have an explaination of the differences? Is it Goodwill?

#6

Proportionate consolidation is only for the portion you get (50%) while acquisition method is 100%.

#7

Would the only difference be Goodwill treatment (if any)?

#8

http://www.investopedia.com/terms/p/proportional-consolidation.asp

#9

I would not be using Investopedia as a source here. That’s clearly an outdated description. It’s vague and misleading.

Bottom line: Only in rare circumstances will proportionate consolidation be allowed for joint ventures under IFRS and US GAAP. (Source: CFAI errata for Level II as of May 7, 2014)

The rules have changed.

#10

If CFA put it in its EOC, you better know what we are talking about here.

Investopedia is not wrong here.

#11

If CFA put it in its EOC, you better know what we are talking about here.

Investopedia is not wrong here.

#12

See the CFA errata below; IFRS allows proportionate consolidation only in rare circumstances with joint ventures.

http://www.cfainstitute.org/Eratta/2014_level_II_errata.pdf

I wouldn’t trust an internet encyclopedia. The CFAI may laugh at you if you contested a question and cited Investopedia as your source of information.

#13

My sources of information are old mocks exams I did … they asked questions about this.

There’s also an EOC in this year books asking about proportionate consolidation.

Its not because they only use it under rare circumstances that you don’t have to know it.

IMO I’m pretty sure that you’ll see at minimum 1 question about that.