Proportionate Consolidation

In proportionate consolidation, an investor accounts for its interest in another entity by consolidating its proportionate share in the assets, liabilities, revenue and expenses of the entity with its financial statements. It was previously allowed under IFRS to account for jointly-controlled entities.

Under the proportionate consolidation method, each transaction of the joint venture affects the investor's books in the same way as its own transactions except for the quantum of impact which depends on the investor's share in the joint venture.

IFRS has replaced the proportionate consolidation method by the equity method, a method in which the net interest in a joint venture and the income earned by the venture are included in the investor's statement of financial position and statement of profit or loss as single line items.


Company A controls 50% of Company J. Company A's revenue is $200 million and Company J revenue is $80 million. Company A's total assets are $1,000 million, total liabilities are $600 million and shareholders' equity is $400 million while Company J's total assets are $600 million, total liabilities are $450 million and shareholders' equity is $150 million.

Revenues reported on the income statement prepared under proportionate consolidation would equal $240 million.

Revenues = Company A revenue + 50% × Company J revenue = $200 million + 50% × $80 million) = $240 million

The same approach shall be used to work out each line item on Company A’s consolidated income statement. Similarly, total assets reported on the balance sheet prepared under the proportionate consolidation method would be $1,300 million

Total assets = Company A assets + 50% × Company J assets = $1,000 million + 50% × $600 million) = $1,300 million

In the same way, total proportionately-consolidated liabilities would be $825 million ($600 million assets plus 50% of $450 million) and consolidated total equity would work out to $475 million (Company A's total equity of $400 million plus 50% of Company J's equity of $150 million).

Even though we have worked out only total assets, total liabilities and total shareholders equity, we would actually need to add Company J’s share line-item-wise, i.e. add 50% of Company J’s fixed assets to Company A’s fixed assets and so on.

by Obaidullah Jan, ACA, CFA and last modified on is a free educational website; of students, by students, and for students. You are welcome to learn a range of topics from accounting, economics, finance and more. We hope you like the work that has been done, and if you have any suggestions, your feedback is highly valuable. Let's connect!

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