Consolidation Calculations Less Then Wholly Owned Subsidiary

Advanced financial accounting. In this presentation we’re going to talk about consolidation calculations for less than wholly owned subsidiaries. So we have a parent subsidiary relationship, we’re going to be looking at the consolidation process to put the financial statements of the parents and the subsidiaries as if they are one entity, but we don’t have a wholly owned subsidiary. In other words, the parent does not own 100% of the subsidiary. How do we do the consolidation? in bad case, consolidation calculations less than wholly owned subsidiaries, that entities entire income and value must be reported per the current standards? So in other words, once again, we might think, well, on the income statement, maybe we would just report the part of the subsidiary that belongs to or is controlled by the parent, but that’s not typically the case. That’s not the case under generally accepted accounting principles.

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Consolidation for Non Wholly Owned Subsidiary

Advanced financial accounting. In this presentation we’re going to talk about a consolidation for a non wholly owned subsidiary. So in other words, we have a parent subsidiary relationship, but the parent doesn’t own 100% of the outstanding common stock of the subsidiary but something other than 100%. In other words, over 51% controlling interest less than 100% get ready to account with advanced financial accounting. Non controlling interest often will be represented NCI non controlling interest. So notice if we have a parent subsidiary relationship we’re talking about there is some controlling interest, the controlling interest is the interest that’s going to be over 51%. However, if we don’t have 100% ownership, then we have the amount that’s not in control and that of course is going to be the non controlling interest. So non controlling interest. NCI controlling interest is needed for consolidation. Obviously, if we’re going to consolidate this thing, that means typically that A parent has some controlling interest over 51% a 100% is not needed. So 100% of ownership, in other words, by one parent to the other is not necessary for a consolidation to take place control is necessary, which is typically over 51% less than 100% ownership will result in a non controlling shareholder, those other than the parent.

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Investments Using the Equity Method

This presentation we’re going to focus in on investments using the equity method. In other words, we’re going to have a situation where we have one company that’s investing in another company, this time they have significant influence. And therefore, we will be using the equity method to account for that investment, get ready to account with advanced financial accounting. In prior presentations, we gave an overview about different accounting methods that could be used based on different levels of influence and control those general rules being that if there is 20, or zero to 20%, ownership, we use the carried value 20 to 50%, which is where we’re going to focus in on now, the equity method, idea of there being that there is now significant influence. So in other words, if we own zero to 20%, that would be kind of like you investing in a large company like apple or whatnot. We’re the assumption being, we don’t have significant influence, even though we do have a vote of what happens However, when our vote gets to be 20% Have the total, that’s kind of a shady line or not completely solid line. But that’s kind of an arbitrary line that’s been drawn, then you’re thinking, Okay, now there’s pretty much significant influence. And therefore, we’re going to use a different method equity method, then if we’re over 51%, which is a more solid line, if you have more than 51%, and you’re voting on things, and you have like more than 51%, then you pretty much win. And that would mean control for that situation typically. And then we may use a different method, such as a consolidation. So we’re going to be focusing in here on the middle method, where we have significant influence where we have that lower line that’s a little bit fuzzy that 20% arbitrarily drawn. And then if you’re over the 51%, then it’s more likely that then you do have control and may be using the consolidated method. In that case. So equity method we’re focusing in on investments using the equity method, the equity method will reflect the investors changing interest in the investi. So we’re going to try to basically reflect what’s going on on the investor side with the change investment in the investi, the company that we are investing in that company, we have a significant influence over investment is recorded at the starting purchase price.

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