Question on GAAP vs IFRS in a consolidation

If Company A assumes a 50% stake in Company B and we assume control, in the consolidated statements is there a difference in the way GAAP and IFRS treat the combined revenues? Based on the CFAI end of ch. questions, I got the impression that GAAP would recognize 50% of Company B’s revenues in GAAP but it would recognize 100% of Company B’s revenues in IFRS. Thanks in advance

AFAIK - if control is assumed ENTIRE revenue of the subsidiary is combined under both US gAAP and IFRS; the discrepancy could be because the merger was considered a JV under US GAAP in which case only 50% of the other’s inocme would be combined by both venturers.

hellboy is correct…there is no JV consolidation method in IFRS…

Proportionate Consolidation is not allowed under US GAAP, but rather IFRS. The entire revenues would be included under US GAAP. Being that control is assumed (as stated in the question), it is not a joint venture (If it were, the equity method would be used). If assuming control, then they aren’t accounting for it as a joint venture. As such, IFRS would call for consolidation as well. If this were a joint venture, IFRS would account for it either with the equity method or proportionate consolidation. EDIT: There would be one difference between the two in consolidation: US GAAP = Minority Interest; IFRS = Noncontrolling Interest.

I noticed that in Ch 21, question 4 (answers) that “control/consolidation” implies incorporating “half” of the target co’s revenues. I wasn’t sure if that was a typo. I appreciate your clarifications.

Para 1 ==> indicates the following: (at the end of the para in the vignette). During the Year, the value of the stake rose by 2 Million $. In Dec 2008, Cinnamon announced that it would be increasing ownership to 50% effective Jan 2009. Hence the 50% reference.

If using GAAP and it’s a control situation, why wouldn’t you consolidate 100% of the revenues?

20-50% is equity method still. so only pro-rata share would be recognized.

cpk123 Wrote: ------------------------------------------------------- > 20-50% is equity method still. so only pro-rata > share would be recognized. But if you have control of the company, you have to consolidate the entity no matter what. There could hypothetically be a situation where a debtor would have to consolidate without having any equity at all. FIN-46 and consolidation of VIE’s is a good example of this… whoever the primarily beneficiary is will consolidate. Generally speaking though, 50% equity stakes are not considered controlling and the equity method is applied.

The 20 - 50% is a benchmark, not a rule. Consolidation is about level of control, not necessarily level of ownership. If the question states “control is assumed”, then you should consolidate.