Total Equity

CFA Level II
#1

I suddenly forgot how to calculate the total equity using equity method, prop consolidation consolidation… any enlightment? Thx!

#2

haha, total equity? what is that when using equity method, the shareholders equity is not affected. using purchase method i think you add all the paid up equity to your own BS. and i dont know how you adjust equity in consolidation. i think it stays uneffected. or u create a minority interest if you consolidate less than 100% . i have no clue what i am talking anymore.

#3

i think equity, net income and ROE are all the same under equity, consolidation, prop consolidated method…

#4

consolidation - all income statement and balance sheet items get the subsidiary wrapped in… revenue, COGS, dep, acct rec, inv, everything gets added. If the parent doesn’t have full ownership (100%) you take a hit for minority interests in both income statement (below the line) and shareholders equity. proportionate consolidation - subs items are included into parents financial statements proportionately. i.e if parent owns 75% of sub, it will report 75% of its assets, liabilities, revenue, COGS, ets. No minority interest adjustment necessary. Equity method - interest in sub is reported in single line in income statement (something like income from unconsolidated entities), and single investment balance in balance sheet. Under all three, net income, and equity and therefore ROE should be the same. However since assets are higher under consolidation, ROA will be lower for consolidation and slightly higher for prop cons and higher for equity.

#5

Also proportionate consolidation is not allowed under GAAP. it is recommended for joint ventures for IFRS (but can also use equity method).

#6

I know all three methods end up with SAME equity, but what is the number for that same equity? I can not prove it myself…

#7

I know all there methods end up with SAME equity, but what is the number for that same equity? I can not prove it myself…

#8

jankynoname Wrote: ------------------------------------------------------- > Also proportionate consolidation is not allowed > under GAAP. it is recommended for joint ventures > for IFRS (but can also use equity method). Prop Consolidation is allowed under GAAP in very rare circumstances.

#9

yeah, proportional is allowed for some contruction company I believe readed in schweser, or the question specified