Equity/Acquisition/Proportionate Consolidation Methods

Assume Company A has 80% interest in Company B.

Equity Method:
 Balance Sheet: 0.8 x Company B’s Assets gets included as a single line item under
Assets on Company A’s B/S.
 Liabilities and Equity stay the same.
 Income Statement:
o 0.8 x Company B’s NI gets included in Company A’s NI.
o Revenue and Expenses stay the same.

Acquisition Method:
 Balance Sheet:
o 100% of Company B’s Assets and Liabilities get reported on Company A’s B/S.
o Next, calculate the minority interest. 0.2 x Company B’s Equity added to Company
A’s Equity under minority interest.
o This is why equity increases under the acquisition and not the equity method.
 Income Statement:
o 100% of Revenue and Expenses of Company B are combined with the Revenue
and Expenses of Company A.
o Next, calculate minority interest. 0.2 x Company B’s NI is reported on Company
A’s I/S as Minority Interest.

Proportionate consolidation: Joint ventures require equity method under IFRS and GAAP except
in rare circumstances. The other method besides the equity method for joint ventures is
proportionate consolidation.
 Balance Sheet: Company A will report 80% of Company B’s Assets and Liabilities. No
minority interest is necessary. Equity is ignored.
 Income Statement: Company A will report 80% of Company B’s Revenue and Expenses. No
minority interest is necessary.