What is the difference between the Acquisition/Consolidation method? method, problems, between, difference, control

anshultongia

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 .

bingbingliang

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

RMontgomery

thanks.

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

sameeragarwal

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.

CP

bingbingliang

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.

giants2010

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.

madaochenggong

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

CP

jacksparrow

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 EXCUSES

bingbingliang

No.

kkn006

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.