Question about proportionate consolidation vs acquisition method

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Jones473

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2. In 2010, if Cinnamon is deemed to have control over Cambridge, it will most likely account for its investment in Cambridge using:
  1. the equity method.
  2. the acquisition method
  3. proportionate consolidation
  4. B is correct. If Cinnamon is deemed to have control over Cambridge, it would use the acquisition method to account for Cambridge and prepare consolidated financial statements. Proportionate consolidation is used for JVs; the equity method is used for some JVs and when there is significant influence but not control.
- Control: Acquisition method.
- JVs: Proportionate consolidation.
- JVs with significant influence but no control: Equity method
So my question is when should we use proportionate consolidation if it should not be used for control and not for JVs with significant influence?
 
In this question have they mentioned that it is a joint venture?
If not, the answer is written in the key that u have provided yourself.
I believe post-IFRS 9, uses equity method for JV.
There is no mention of proportionate method provided u are considering a post IFRS 9 period.
 
300hoursoverandoveragain wrote:
In this question have they mentioned that it is a joint venture?
If not, the answer is written in the key that u have provided yourself.
I believe post-IFRS 9, uses equity method for JV.
There is no mention of proportionate method provided u are considering a post IFRS 9 period.
Click to expand...
Are you saying that post IFRS 9 we only use equity method and acquisition method?
 
Nope, the choice of method will be mainly based on whether u have significant influence or control over the entity which will decide what your investment will be classified as. Provided it is classified as Joint venture and the condition is post IFRS 9, propotionate consolidation will no longer be allowed. In others words, you would have to use equity method.
 
The curriculum only states that joint ventures are allowed to use proportionate consolidation only under “rare circumstances”. And yes, under IFRS 9, joint ventures are required to be accounted for using the equity method.
 
300hoursoverandoveragain wrote:Consolidation will be the method used provided u have control over the entity
Click to expand...
Yes but only if it is pre IFRS 9?
 
Jones473 wrote:
300hoursoverandoveragain wrote:Consolidation will be the method used provided u have control over the entity
Click to expand...
Yes but only if it is pre IFRS 9?
Click to expand...
Yes proportionate consolidation is a form of consildation for Joint Ventures. It is not allowed post-IFRS 9
Consolidation method is used in the case where there is control for other forms of corporate investments such as business combination.
In a nutshell, proporationat consolidation for joint ventures is no longer allowed post IFRS 9. In the case of business combinations, consolidation method is allowed.
AGAIN NOTE THE DIFFERENCE BETWEEN PROPORTIONATE CONSOLIDATION AND CONSOLIDATION
 
300hoursoverandoveragain wrote:
Jones473 wrote:
300hoursoverandoveragain wrote:Consolidation will be the method used provided u have control over the entity
Click to expand...
Yes but only if it is pre IFRS 9?
Click to expand...
Yes proportionate consolidation is a form of consildation for Joint Ventures. It is not allowed post-IFRS 9
Consolidation method is used in the case where there is control for other forms of corporate investments such as business combination.
In a nutshell, proporationat consolidation for joint ventures is no longer allowed post IFRS 9. In the case of business combinations, consolidation method is allowed.
AGAIN NOTE THE DIFFERENCE BETWEEN PROPORTIONATE CONSOLIDATION AND CONSOLIDATION
Click to expand...
Thanks. I assume you mean that consolidation means to consolidate everything 100%? And proportionate would be to consolidate everything by e.g. 35%, if 35% ownership?
 
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