Reading 17 EOC Q12

[ayousaf]

“Zimt’s (acquiring company) net income will most likely be:
a) highest if Zimt is deemed to have control of Oxbow (target company)
b) highest if Zimt is deemed to have significant influence over Oxbow
c) independent of the accounting method used for investment in Oxbow”
The correct answer is C. What I don’t understand is why full consolidation (i.e. 100%) of Oxbow’s net income in Zimt’s income statement would have the same effect as a partial consolidation (i.e. 30% of Oxbow’s net income). Can somebody please explain?
Thanks

 

[S2000magician]

Whether under the equity method, partial consolidation, and full consolidation, net income is the same.
Under the equity method, you show your percentage of the subsidiary’s net income.
Under partial consolidation, you show your percentage of the subsidiary’s revenues and your percentage of the subsidiary’s expenses; the net is your percentage of the subsidiary’s net income.
Under partial consolidation, you show 100% of the subsidiary’s revenues and 100% of the subsidiary’s expenses, resulting in 100% of the subsidiary’s net income. From this you subract the percentage of the net income that isn’t yours (the minority interest); the net is your percentage of the subsidiary’s net income.