Under 50% Investment, Equity or Proport. Consol?

CFA Level II
#1

Simple question guys, although I can’t freaking remember.

If the company has signif. influence, but is under 50%, so not control and not a joint venture, under IFRS and GAAP I thought you use proportionate consolidation, but I just read it was equity… Help!

Thanks.

#2

it’s equity. only IFRS JOINT VENTUR use proportionate

#3

Significant influence and less than 50%? Thats definitely equity.

Passive Investment (Typically under 20%) - Investment in Financial Assets

Significant Influence (Typically between 20 - 50) - Equity Method

Joint Control (Typically 50/50) - Proportionate Consolidation

Control (Typically above 50%) - Acquisition Method (Full Consolidation)

The ability to influence the investee is the primary determinant of how to account for the investment, not necesarily the percentage ownership.

#4

Thanks fellas

#5

Also proportionate consolidation is IFRS only (although they have proposed to revise it to converge with GAAP).

It does not have to be 50/50 ownership though - it might be an odd occurence for someone to have a 70% economic interest but share control (equally) with the 30% venturer. But this would be a typical CFAI curve ball type questyion. The requirement is joint control so in your original question, if one entity has control it cannot be proportionate consolidation.