What is the difference between the Acquisition/Consolidation method?

I know acquisition is used for M&A, is consolidation used for >50% = control. If so, when you do problems, are acquisition and consolidation method the same .

they should mean the same thing unless they specifiy proportionate consol.

thanks. can anyone explain ,is the equity method allowed for business >50%

vinniepaz730 Wrote: ------------------------------------------------------- > thanks. > > can anyone explain ,is the equity method allowed > for business >50% No it wont. Because then you would have significant influence along with control over the business. I fail to see how you would own more than 50% of the business and not have control over it.

it depends on amount of control that can be inserted. In spite of having > 50% of the target company, if you are unable to exert control over the company, yes - Equity method can be used. key point to differentiate (or an issue to understand) with regards to the equity method is that --> are you trying to make use of the equity method only for the purpose of reporting the share of the profits? Since you assets increase by a small amount - but you get a share of the profits - your performance measures ROE, ROA may be inflated using the Equity method. When you use Consolidation method - you are accounting for more of the assets. Additionally Net Profit Margin - in Equity method would be inflated - since you include earnings pro-rata share, but no sales. In consol - sales is also included - so your NI/Sales would be deflated with Consol. method.

cpk123 Wrote: ------------------------------------------------------- > it depends on amount of control that can be > inserted. In spite of having > 50% of the target > company, if you are unable to exert control over > the company, yes - Equity method can be used. > > key point to differentiate (or an issue to > understand) with regards to the equity method is > that --> are you trying to make use of the equity > method only for the purpose of reporting the share > of the profits? Since you assets increase by a > small amount - but you get a share of the profits > - your performance measures ROE, ROA may be > inflated using the Equity method. When you use > Consolidation method - you are accounting for more > of the assets. Additionally Net Profit Margin - in > Equity method would be inflated - since you > include earnings pro-rata share, but no sales. In > consol - sales is also included - so your NI/Sales > would be deflated with Consol. method. Good point.

idreesz - that is exactly one of the misuses of the equity method… (or potential misuse).

Thanks.!!

idreesz Wrote: ------------------------------------------------------- > vinniepaz730 Wrote: > -------------------------------------------------- > ----- > > thanks. > > > > can anyone explain ,is the equity method > allowed > > for business >50% > > > No it wont. Because then you would have > significant influence along with control over the > business. > > I fail to see how you would own more than 50% of > the business and not have control over it. If you acquire greater than 50% and they have staggered board elections.

No.

CP or whoever. I want to be really clear on something. With regards to owners equity, Is owners equity higher when using the the acquisition method but the same when using the equity or proportionate consolidation method. Just need to reinforce this if it is so since Schweser seems to be seriously incorrect on this.

Well I’m pretty sure equity is the same under prop. consolidation OR equity method. However, under the consolidation/acquisition method, equity is higher because you take into account of the minority interest’s equity, since its’ fully consolidated. Someone correct me if i’m wrong please.

Proportionate consolidation and equity method display the same amount of equity. Consolidation is different due to minority interest.

Perfect, Schweser says equity is the same under all three methods which must be errata.

Theoretically you could own more that 50% of a Joint Venture. That would be Equity method under GAAP.