Advanced Accy-3 methods

Advanced accounting textbooks present consolidation techniques and procedures from the standpoint of the parent's use of both the cost and equity methods. With respect to the equity method, one or more of the following three approaches are generally presented:

1. The "simple" equity method: Under this method, the parent's investment account reflects the price paid plus the parent's share of the subsidiary's net income less dividends.

2. The "partial" equity method: This method is the same as the "simple" equity method, except that the parent also adjusts its investment and subsidiary income accounts each period for any excess of cost over book value (or vice versa) as the undervalued (overvalued) assets and/or liabilities are used by the subsidiary in its earnings process.

3. The "full" or "complete" equity method. The parent extends the "partial" equity method and adjusts its accounts for intercompany transactions such as intercompany inventory profits that are unrealized at a financial statement date.