What is proportionate consolidation?

What is proportionate consolidation?

Proportional consolidation considered income, expenses, assets, and liabilities in proportion to a firm’s percentage of participation in a joint venture. The equity method, used under generally accepted accounting principles (GAAP), is an alternative accounting approach to proportional consolidation.

Do you consolidate joint ventures?

A joint venture (JV) is a contractual arrangement whereby two or more parties agree to share control over an economic activity. The parties do not merge.

How do you do proportional consolidation?

The Proportional Consolidation Method For example, if Company A has 50% controlling interest over Company X, Company A would record the investment at 50% of the assets, liabilities, revenues, and expenses of Company X.

How is proportional consolidation accounted for in GAAP?

Under the U.S. generally accepted accounting principles (GAAP), a firm’s interest in a joint venture is accounted for using the equity method. Proportional consolidation was a former accounting method under International Financial Reporting Standards (IFRS).

Is the proportional consolidation method used in IFRS 11?

International Accounting Standards (IAS) 31 merged joint operations and joint ventures, and IFRS 11 requires the use of the equity method and the abolition of the proportional consolidation method. Though the proportional consolidation method was previously accepted by the IFRS, it also allowed the use of the equity method .

What do you need to know about proportional consolidation?

Key Takeaways 1 Proportional consolidation was a former accounting method under International Financial Reporting Standards (IFRS). 2 On Jan. 3 Proportional consolidation considered income, expenses, assets, and liabilities in proportion to a firm’s percentage of participation in a joint venture.

How is proportional consolidation used in a joint venture?

It was a method of including income, expenses, assets, and liabilities in proportion to a firm’s percentage of participation in a joint venture. Though the proportional consolidation method was previously accepted by the IFRS, it also allowed the use of the equity method .