Full consolidation method ii: net equity-investment elimination in subsequent consolidations (III)

Abstract

The net equity-investment’s entry in subsequent consolidations should be done under the same methodology applied at the acquisition date. Nevertheless, the key point that should be taken into account in subsequent consolidations is the variation (increase/decrease) that can affect the net equity of the dependent companies. Such variation could be trigger by: (i) a change at the subsidiary’ reserves, (ii) a valuation adjustment, (iii) a subsidy, a donation or a legacy received, or (iv) as a result of the net profit generated by the subsidiary during the year in which you are consolidating the company.

Therefore, in those situations, the accounting process should try to separate the net equity variation that corresponds to the Parent company, from the variation corresponding to the Minority Interest. The net equity change related to the Parent company will be divided in different accounts as per its nature (reserves in consolidated companies for the variation in reserves; subsidies atributted to the Parent company for the variation in subsidies or donations...).

The subsidiaries’ income and expenses (including both the ones recognised at the P&L Statement and the ones recognised at the Statement of recognised income and expense) should be distributed between the Minority Interest and the Parent company. In general terms, the Minority Interest valuation should be done based on its effective interest on the subsidiary’s net equity.

As an alternative, under the International Accounting Standards it is allowed to enter in the books the Minority Interest valuation as per its fair value at the acquisition date, what triggers the allocation of part of the goodwill generated at the acquisition date to the Minority Interest. Nevertheless, in subsequent consolidations, they will be register which their initial valuation plus (or minor) their effective interest on the variation subsidiary’s net equity.