Morning Quiz L-2 Q: 44

mail2arungoel
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Posts: 29
Joined: Mon Apr 23, 2012 9:45 pm

Morning Quiz L-2 Q: 44

Postby mail2arungoel » Mon May 28, 2012 6:27 pm

Pl. explain how statement no. 3 is incorrect (least likely to be true) using the solution provided in the solution sheet:

44. Ans. c) Statement 1 and 2 are true whereas the statement 3 is false. The assets, liabilities, revenues and expenses are higher when the proportionate consolidation method is used when compared to the equity method.

Statement 2 & 3 are:

Statement 2: The assets and liabilities will be higher in case IFRS is used for the Blooming Stars Inc. investment when compared to Suntech Inc. investment.
Statement 3: The revenues and expenses will be higher in case IFRS is used for the Blooming Stars Inc. investment when compared to Suntech Inc. investment.

Regards,
Arun

jaspreet.frm
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Posts: 13
Joined: Mon May 14, 2012 2:42 pm

Re: Morning Quiz L-2 Q: 44

Postby jaspreet.frm » Wed May 30, 2012 3:27 pm

Hi Arun

I think there is some typing mistake in the statements. Because statement 3 is also correct.

Equity method doesn't take into account the revenue and expenses of the acquired company( or the company in which investment is done). Whereas Proportionate consolidation method adjusts the revenue and expenses in the income statement according to the % of share. So, Revenue and Expenses are greater under proportionate consolidation method as compared to equity method

But, don't worry, It is very unlikely that you will face such minor errors in the actual exam.


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