What are the similarities and differences between the equity method and the proportional consolidati

Equity method. Less useful information is provided.

In the equity method, the cost of business combinations is higher.

The equity method adversely affects resource allocation.

The equity approach is flawed on a conceptual basis.

The equity method is applied to long-term equity investments.

A method of accounting.

Proportionate consolidation is the opposite of full consolidation. The assets, liabilities, income and expenses of the invested enterprise shall be incorporated into the financial statements of the invested enterprise according to the proportion of the investee's equity investment in the investee enterprise.

Reporting procedures.

The cost method and the equity method of the preparation of consolidated financial statements are mainly different in nature, and the rights and interests maintained are the same.

Equity method: It refers to the method of valuing long-term equity investment according to the proportion of the invested enterprise in the equity capital of the invested enterprise. When the equity method is used for long-term equity investment, in addition to increasing or decreasing the increase or decrease in the book value caused by the impact of equity on long-term equity investment, the book value of the long-term equity investment of the invested enterprise shall be increased or decreased accordingly if the invested enterprise incurs profits or losses.

According to this method, the book value of the "long-term equity investment" account is adjusted according to the proportion of its equity in the investee enterprise and the change in the net assets of the investee enterprise. When using this method, the investment enterprise should record the net profit or loss obtained by the investment enterprise each year in proportion to the investment equity as its own investment profit or loss, and express it as an increase or decrease in investment. If it receives dividends from the invested enterprise (excluding ** dividends, the same below), the investment enterprise shall offset the book value of the investment account.

The above content refers to the encyclopedia - equity method.

Only subsidiaries under control can be included in the consolidated financial statements. Whereas, the subsidiary under control should use the cost method for accounting.

Difference Between Equity Method and Cost Method in Accounting:

1. When making an investment:

Cost Method: Borrow: Long-Term Equity Investment Loan: Bank Deposit.

Equity Method: Borrow: Long Term Equity Investment (Cost) Credit: Bank Deposit.

2. The difference between the initial cost of a long-term equity investment and its share in the owner's equity of the investee:

Cost method: Not confirmed.

Equity method: If the initial cost of a long-term equity investment is less than the difference between its share in the owner's equity of the investee, the initial investment cost will be adjusted, and the initial investment cost will not be adjusted if the initial cost of the long-term equity investment is higher than its share in the owner's equity of the investee.

Borrow: Long-term Equity Investment - Cost Loan: Non-Operating Income (Difference above).

3. When there is a change in the equity of the investee:

Cost approach: The carrying amount of a long-term equity investment should generally remain unchanged unless the investment is added or recovered.

Equity method: pro-rata adjustment to the book value of long-term equity investments:

Borrow: Long-term Equity Investment (Changes in Other Equity) Loan: Capital Reserve.

4. When the investee realizes a profit or incurs a loss:

Cost method: no processing.

Equity method: Recognition of investment income (reverse entry in case of loss):

Borrow: Long-term Equity Investment (Profit or Loss Adjustment) Credit: Investment Income.

5. When the investee declares the distributed profits or cash dividends:

Cost Method: Treated as Current Investment Income: Borrow: Dividend Receivable: Investment Income.

Equity method: If the cash dividends distributed by the investee under the equity method do not exceed the recognized profit and loss adjustment, the "long-term equity investment - profit and loss adjustment" shall be written off, and the excess part (that is, when the amount of the profit and loss adjustment detail account is 0) shall be written off, that is, the "long-term equity investment - cost".

The cash dividends distributed in the current year are also treated according to the above principles.

Borrow: Dividends Receivable Loan: Long-Term Equity Investment - Profit and Loss Adjustment or Credit: Long-Term Equity Investment - Cost.

6. When receiving cash dividends:

Cost Method: Borrow: Bank Deposits Credit: Dividends Receivable.

Equity Method: Borrow: Bank Deposits Credit: Dividends Receivable.

Cost method: The book value of long-term equity investment is generally unchanged at actual cost after investment, except for additional investment, conversion of cash dividends or profits due to investment into investment or receipt of investment.

Equity method: Investments are initially valued at the initial cost of investment, and the carrying amount of the investment is later adjusted according to changes in the share of ownership equity of the investee enterprise to the investee.

Consolidated Financial Statements.

The scope of the merger is that the parent company directly owns more than half of the shares of the invested enterprise; The parent company indirectly owns or controls more than half of the shares of the invested enterprise; The parent company directly and indirectly owns or controls more than half of the shares of the invested enterprise.

The scope of consolidation that should not be included in the consolidated financial statements of the parent company is the atomic company that has been declared liquidated; Atomic companies that have been declared bankrupt; Other investees that the parent company cannot control.

Consolidated financial statements.

The scope of consolidation refers to the scope of subsidiaries included in the preparation of consolidated accounting statements, mainly clarifying which subsidiaries should be included in the scope of preparation of consolidated accounting statements and which subsidiaries should be excluded from the scope of preparation of consolidated accounting statements. Clarification of the scope of consolidation is a prerequisite for the preparation of consolidated accounting statements. Investee enterprises controlled by the parent company fall within the scope of preparation of consolidated accounting statements.

According to the regulations, the specific enterprises that should prepare consolidated accounting statements, the invested enterprises in which the parent company owns more than half of its equity capital, and other invested enterprises controlled by the parent company. The parent company shall include all its subsidiaries in the consolidated financial statements of the consolidated financial statements.

In this case, if the financial and operational policies of the investee are still determined by the Company, the restriction on the allocation of funds does not prevent the Company from exercising control over it, and it should be included in the scope of consolidation of the consolidated financial statements. Parent company and subsidiaryThe parent company refers to the enterprise (or entity) that has one or more subsidiaries. A sub-hundred company refers to an enterprise that is controlled by the parent company.

Specific application of control: The parent company directly or indirectly through a subsidiary owns more than half of the voting rights of the investee, indicating that the parent company can control the investee, and the investee should be recognized as a subsidiary and included in the scope of consolidation in the consolidated financial statements. However, there is an exception for the Friendship Bureau, where there is evidence that the parent company knows that it cannot control the investee.

This is generally the case for subsidiaries. Because there is no way to truly reflect the financial status, operating results, cash flow and so on of the company group under the cost method, it is necessary to look at the parent and subsidiary as a whole, so although the cost method is used for the daily accounting of the subsidiary, the equity method is used in the consolidated statements.

It can be seen that under the equity method, the long-term equity investment of the parent company truly reflects the proportion of the investee's net assets. Therefore, it is more reasonable to adjust to the consolidated statements of the equity method.

Subsidiaries not acquired under the same control shall be accounted for by the cost method, and the adjustment shall be made to the equity method when the financial statements are consolidated, and the cost method may also be used for consolidation, but the consolidation results shall be consistent with the results of the equity method consolidation. That's what I always say.

The consolidated statements are calculated according to the proportion of the income rights of the slow bucket. Income from disposal of investment in the current period of the consolidated statement [(Consideration for disposal of equity Fair value of residual equity) Identifiable net assets of the original subsidiary company continuously calculated from the date of acquisition Original shareholding ratio] Goodwill Other comprehensive income Original shareholding ratio, so it is multiplied by the original shareholding ratio.

It can also be saidIt is a financial statement prepared by the holding company to reflect the consolidated financial position and operating results of the group after offsetting the group's internal current accounts, and the consolidated statements include consolidated balance sheet, consolidated profit and loss statement, consolidated cash flow statement or consolidated statement of changes in financial position.