Consolidator Equity Method

Use Consolidator Equity Method when the amount of investment in a company is at least 20% and less than 50% and is held for at least one year. Business unit values roll-up into Dividends from Subsidiaries and Earnings from Investments accounts, which are used to calculate the parent's Investments: Equity Method:

v2420.00 Investments: Equity Method (prior period)

+ v2420.01 Increase in Investments: Equity Method

- v2420.02 Dividends from Subsidiaries

+ v2420.03 Earnings from Investments: Equity

= v2420.00 Investments: Equity Method

Four calculations are added to the consolidated parent:

  • The Dividends from Subsidiaries (v2420.02) account increases by the ownership percentage times the subsidiary's cash dividends (v1900 Total Common Dividends), automatically reducing the balance in the investment account:

    Parent's v2420.02 = Ownership% x subsidiary's v1900

  • The Earnings from Investments: Equity (v2420.03) account increases by the ownership percentage times the subsidiary's after-tax net income (v1750 Net Income), automatically increasing the balance in the investment account:

    Parent's v2420.03 = Ownership% x subsidiary's v1750

  • In the valuation adjustment for the Cost and Equity methods, SVA (v5.00.900) increases by the ownership percentage times the subsidiary's SVA value (v5070 Shareholder Value):

    Parent's v5.00.900 = Ownership% x investment's v5070

  • In the valuation adjustment for the Cost and Equity methods, EP (v5.00.910) increases by the ownership percentage times the subsidiary's EP value (v5790 Economic Profit Shareholder Value):

    Parent's v5.00.910 = Ownership% x investment's v5790

    Note:

    The opening balance for the subsidiary investment account (v2420.00 Investments: Equity Method) should be in the parent company's file. The initial investment in the subsidiary should be recorded at cost.