Why does it say ROE is higher under equity method than the proportionate method if NI under all 3 methods is the same and equity is the same under proportionate and equity method and greater by M.I. under acquistion?
Where did you see ROE was different between equity method and proportionate consolidation?
It was an answer on of the old mocks I took. Would you think ROE should be equal for proportionate and equity?
I havn’t reviewed this yet, but doesn’t proportional consolidation take a percentage of assets?
More assets = lower ROA. Lower ROA = Lower ROE.
Equity is not always higher under proportionate consolidation, it depends on how much the investment cost. Proportionate consolidation basically takes the percentage ownership of the book value of assets, liabilities, and equity.
I have to review the FRA to check though.
ROE should be equal between Equity Method and Proportional Consolidation
Under the equity method, the account is initially recorded at cost, unless it was purchased for BVE, then it shouldn’t give the same amount of ROE. Dividends and earnings change the allocation of that account on the asset side, but the equity amount doesn’t change.
Still, someone correct me if I’m wrong.
Why do you think that equity differs between the Equity Method and Proportional Consolidation? If I recall correctly from FRA, NI and EQ are identical between these two methods
Because under the EM, the investment is recorded at cost, while in PC, equity is the share of book value. I haven’t looked in months, so again, I’m probably wrong.
NI is the same under equity and proportinate consolidate
Equity is the same under both as well
you guys can do the division!
I’ll have to dig deeper after work, but I almost 100% certain that we should obtain the same Equity between EM and PC. I am 100% sure that we maintain the same NI, but am almost just as certain about Equity being equal between the two as well