FINANCE AND ACCOUNTING 4
Consolidation and Equity Methods of Accounting
To: The Chief Executive Officer
From: Finance Office
Cc: Human Resource Office
Subject: Consolidation and Equity Methods of Accounting
Following the decision of the company to acquire the stocks of one of our leading
competitors, it is vital that as the finance department, we take the initiative of accessing the
various methods applicable in ascertaining the value of such companies before committing to
purchasing shares belonging to the corporations. The technique applied in the evaluation of
company worth from equity involves the two methods of consolidation and equity accounting
methods. The methods are both critical in determining the amount of stake the firm owns and
such value that the stake holds.
Consolidated accounting Method: the method either is applied for assessing stocks of
the company that holds the commanding stake in the business in the forms of equity or shares.
As such, depending on the amount of stake owned by the company at the time of consolidation
either in the types of investment or dividends, the company method of accounting applied in
determining the stake the company holds in its interests in the business. In case the decision
arrived at by the company is to acquire controlling shares, then we shall act as the parent
company of the acquired firm. The parent firm shall treat the subsidiary as a non-existent and
place all its assets and liabilities in our consolidated balance sheets not forgetting to have all its
profits, losses, losses, and revenues to the income statements.