on 07-15-2013 6:38 AM
Hi All,
Please could you help on consolidation.
What is consolidation of investments?
what is the difference between equity method purchase method and praportinate method and in which business scenarious we go for these methods. what is the impact on Balancesheet and Income statement
what is investment elimination
what is common stock elimination
what is minority interest calculation postings? On what basis we calculate minority interest
Please help me for the above in detail.
Regards
naveen
Hi Naveen,
Though Nilanjan and Kalyan has already explained the concept of consolidation with methods of consolidation, following are few links which explains about consolidation from functional side: (for reference purpose only)
Hope it helps you.
- Ashwin.
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Hi Naveen,
As Nilanjan it would be very difficult to explain all these concept here.
But the general rule is Purchase method if the holding is more than 50%, Equity method if holding is between 20% to 50%. Proportional method is generally used in jointly owned businesses.
Investment and equity elimination basically means the holding compnay has to eliminate the equity against investment and the difference goes to minorty interest.
Hope this helps.
Regards,
Kalyan.
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Hi Kalyan,
The definition that you have given is not exactly true in all cases. The method of consolidation depends on lot of things, apart from the holding structure. The method is mainly owned by the amount of control which might not be same as the holding percentage. It also depends on which country's accounting principles are followed. In IGAAP, proportional method might not be even applicable. Minority interest is typically calculated if there has been an acquisition. It generally doesnt come into picture in JVA or in case of equity method.
Hi Nilanjan,
I completely agree with you, that is why I said the "genral rule". It is not applicable in call cases. Besides my intention was to give a general guidance.
Equity and investment elimination happens only in purchase method and so there is no question of minority interest in other methods.
Minority interest in calculated and posted every time we use purchase method irrespective of new acquisition.
Regards,
Kalyan.
Hi Naveen,
It would be very difficult to explain these concepts in this forum. I would request you to search for these items on the internet, and then if you have any specific doubts, we can try to address them.
These 3 consolidation types are quite vast, in nature, and addresses investment eliminations / common stock eliminations / minority interest very differently.
Hope this helps.
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