In this question set, I don’t understand why it asks us to discuss the effect of using consolidation methods with full/partial goodwill, when NinMount has only 50% stake in Boswell. To use any consolidation method, isn’t it true that you have to have at least 51% stake? (I did notice the textbook says “Usually”> 50%, maybe this is why?)
Thanks.
The 50% is just a guide. You usually presume that having more than 50% gives you CONTROL. It is not the share ownership percentage which is the deciding factor but the ability to exercise CONTROL.
To give you an extreme example: I once did training for a client who held no equity stake in another business, literally 0%, but was still deemed to be in CONTROL because they had the power to nominate tha majority of the other company’s board (by means of an agreement with the actual owners). The result was such that my client consolidated the other company just like any other subsidiary … and had a rather impressive minority interest position within equity as a side effect.
Also, it is commonly used for ‘joint ventures’, therefore, two companies split up to 100%
As mentioned above, the criterion is whether the parent (investing) company has control or not, not the percentage of ownership.
If the parent has control with 40% ownership, consolidation is appropriate. If the parent doesn’t have control with 60% ownership, the equity method is appropriate.
Control is presumed at more than 50% ownership, lacking evidence to the contrary. Your job, as a candidate, is to look for evidence to the contrary in the vignette.
Thank you all for the explanation!!