Upon Consolidation: I understand that assets and liabilities of the off balance sheet entity will be added to the “parents” BS, but I am unsure about the affect on Equity. Is it changed due to NI flowing through to Equity? Or does equity stay unchanged? Or is there something else I am missing?
A= L + E assets go up, liabilities go up, no effect on equity you’re just bringing something onto the parent’s balance sheet correct me if i’m wrong
That was my initial understanding but a practice problem in the Kaplan review stated “as a result of consolidating SPEs that were previously accounted for using the equity method results in assets and equity increasing but NI wont change” So my comment about NI effecting equity is not correct.
so we’re going from equity method to consolidation? Assets are higher under consolidation…i’m not really clear on your question…