{"id":208241,"date":"2025-04-26T08:59:44","date_gmt":"2025-04-26T08:59:44","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=208241"},"modified":"2025-04-26T08:59:46","modified_gmt":"2025-04-26T08:59:46","slug":"which-method-must-be-used-if-asc-810-10-65-prohibits-full-consolidation-of-a-70-owned-subsidiary","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/04\/26\/which-method-must-be-used-if-asc-810-10-65-prohibits-full-consolidation-of-a-70-owned-subsidiary\/","title":{"rendered":"Which method must be used if ASC 810-10-65 prohibits full consolidation of a 70% owned subsidiary"},"content":{"rendered":"\n

Which method must be used if ASC 810-10-65 prohibits full consolidation of a 70% owned subsidiary? Select one:<\/p>\n\n\n\n

a. Equity method
b. The Liquidation value
c. Market value
d. The cost method<\/p>\n\n\n\n

The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n

Correct Answer: a. Equity method<\/strong><\/p>\n\n\n\n

\n\n\n\n

Explanation:<\/h3>\n\n\n\n

Under ASC 810-10-65<\/strong>, part of the Accounting Standards Codification (ASC) 810 \u2013 Consolidation<\/strong>, the Financial Accounting Standards Board (FASB) outlines the requirements for consolidating financial statements when one entity has a controlling financial interest<\/strong> in another. Typically, if a parent owns more than 50%<\/strong> of a subsidiary, it is required to fully consolidate<\/strong> that subsidiary into its financial statements. However, ASC 810-10-65 also provides guidance on exceptions<\/strong> to full consolidation.<\/p>\n\n\n\n

If ASC 810-10-65 prohibits full consolidation<\/strong> of a 70% owned subsidiary<\/strong>, this usually means that the parent, despite its majority ownership, does not have effective control<\/strong> over the subsidiary. This situation could arise due to contractual agreements, legal restrictions, or other conditions<\/strong> that limit the parent\u2019s ability to direct the activities of the subsidiary.<\/p>\n\n\n\n

In such cases, the parent company cannot consolidate the subsidiary using the full consolidation method<\/strong>. Instead, it must use the equity method<\/strong> of accounting. Under the equity method, the parent does not combine<\/strong> the subsidiary’s assets, liabilities, revenues, and expenses with its own. Instead, the investment in the subsidiary is recorded as a single line item<\/strong> in the parent\u2019s balance sheet, and the parent\u2019s share of the subsidiary\u2019s net income or loss<\/strong> is recognized in its income statement.<\/p>\n\n\n\n

Why the Other Options Are Incorrect:<\/h3>\n\n\n\n
    \n
  • b. Liquidation value<\/strong>: This is not a recognized accounting method for ongoing subsidiaries. It is typically used in bankruptcy or wind-down scenarios.<\/li>\n\n\n\n
  • c. Market value<\/strong>: This method is more relevant for investment securities<\/strong> rather than for accounting for investments in subsidiaries.<\/li>\n\n\n\n
  • d. Cost method<\/strong>: This is used when the investor has little or no influence<\/strong> (typically less than 20% ownership). It is not appropriate when the parent owns 70%, as that suggests significant influence<\/strong>, even if consolidation is restricted.<\/li>\n<\/ul>\n\n\n\n

    Thus, when consolidation is prohibited, but ownership is still significant (e.g., 70%), the equity method is the appropriate alternative.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

    Which method must be used if ASC 810-10-65 prohibits full consolidation of a 70% owned subsidiary? Select one: a. Equity methodb. The Liquidation valuec. Market valued. The cost method The correct answer and explanation is : Correct Answer: a. Equity method Explanation: Under ASC 810-10-65, part of the Accounting Standards Codification (ASC) 810 \u2013 Consolidation, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-208241","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/208241","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=208241"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/208241\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=208241"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=208241"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=208241"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}