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Financial reporting developments A comprehensive guide

Consolidated and other financial statements Noncontrolling interests, combined financial statements, and parent company financial statements

Revised October 2012

Financial reporting developments Consolidated and other financial statements

To our clients and other friends

This Financial reporting developments (―FRD‖) publication is designed to help you understand financial

reporting issues related to the accounting for noncontrolling interests. This publication also includes

interpretive guidance on consolidation procedure and on the presentation of combined and parent-only

financial statements. The publication reflects our current understanding of the provisions in ASC 810,

Consolidations, based on our experience with financial statement preparers and related discussions with

the FASB and SEC staffs.

The accounting for noncontrolling interests is based on the economic entity concept of consolidated

financial statements. Under the economic entity concept, all residual economic interest holders in an

entity have an equity interest in the consolidated entity, even if the residual interest is relative to only a

portion of the entity (that is, a residual interest in a subsidiary). Therefore, a noncontrolling interest is

required to be displayed in the consolidated statement of financial position as a separate component of

equity. Likewise, the consolidated net income or loss and comprehensive income or loss attributable to

both controlling and noncontrolling interests is separately presented on the consolidated statement of

comprehensive income.

Consistent with the economic entity concept, after control is obtained, increases or decreases in

ownership interests that do not result in a loss of control should be accounted for as equity transactions.

However, changes in ownership interests that result in a loss of control of a subsidiary or group of assets

generally result in corresponding gain or loss recognition upon deconsolidation. The decrease in

ownership guidance generally does not apply to transactions involving non-businesses, in-substance real

estate or oil and gas mineral rights conveyances.

The primary revisions made to this publication include the reorganization of certain content and the

removal of the discussion of the transition guidance in FASB Statement No. 160, Noncontrolling Interests

in Consolidated Financial Statements, an amendment of ARB No. 51 (primarily codified in ASC 810).

We also enhanced the interpretive guidance in Chapter 2 related to the presentation of noncontrolling

interests when derivatives are issued with or as part of those interests. We also added certain other

interpretive guidance (for example, to reflect the issuance of new guidance for deconsolidating in-

substance real estate). These important changes are summarized in Appendix C.

Practice and authoritative guidance interpreting the provisions of ASC 810 continue to evolve and

therefore readers should monitor developments in this area closely.

October 2012

Financial reporting developments Consolidated and other financial statements i

Contents

1 Consolidated financial statements .............................................................................. 1

1.1 Objectives and scope ............................................................................................................. 1

1.2 Consolidation procedure — time of acquisition.......................................................................... 4

1.2.1 Acquisition through single step ...................................................................................... 4

1.2.2 Acquisition through multiple steps ................................................................................. 4

1.3 Proportionate consolidation ................................................................................................... 5

1.4 Differing fiscal year-ends between parent and subsidiary ......................................................... 6

2 Nature and classification of the noncontrolling interest ................................................ 8

2.1 Noncontrolling interests ......................................................................................................... 8

2.2 Equity derivatives issued on the stock of a subsidiary ............................................................... 9

2.2.1 Is the equity derivative embedded in the noncontrolling interest or freestanding? .......... 10

2.2.1.1 Equity derivatives considered embedded ............................................................ 11

2.2.1.2 Equity derivatives considered freestanding ......................................................... 11

2.2.2 Equity derivatives deemed to be financing arrangements .............................................. 12

2.2.3 Application of the redeemable equity guidance ............................................................. 12

2.2.3.1 Measurement and reporting issues related to redeemable equity securities .......... 13

2.2.4 Earnings per share considerations................................................................................ 14

2.2.5 Examples of the presentation of noncontrolling interests with equity

derivatives issued on those interests ............................................................................ 14

2.2.6 Redeemable or convertible equity securities and UPREIT structures .............................. 19

2.2.7 Redeemable noncontrolling interest denominated in a foreign currency ......................... 20

3 Attribution of net income or loss and comprehensive income or loss ........................... 22

3.1 Attribution procedure .......................................................................................................... 22

3.1.1 Substantive profit sharing arrangements ...................................................................... 22

3.1.2 Attribution of losses .................................................................................................... 24

3.1.2.1 Distributions in excess of the noncontrolling interest’s carrying amount ............... 24

3.1.3 Attribution to noncontrolling interests held by preferred shareholders ........................... 25

3.1.4 Attribution of goodwill impairment ............................................................................... 25

3.1.5 Attributions related to business combinations effected before Statement

160 and Statement 141(R) were adopted .................................................................... 26

3.1.6 Effect on effective income tax rate ............................................................................... 26

4 Changes in a parent’s ownership interest in a subsidiary while control is retained ........ 28

4.1 Increases and decreases in a parent’s ownership of a subsidiary ............................................. 28

4.1.1 Increases in a parent’s ownership interest in a subsidiary .............................................. 29

4.1.1.1 Increases in a parent’s ownership interest in a consolidated VIE ........................... 30

4.1.2 Decreases in a parent’s ownership interest in a subsidiary without loss of control ........... 30

4.1.2.1 Accounting for a stock option of subsidiary stock ................................................ 32

4.1.2.2 Scope exception for in-substance real estate transactions ................................... 32

4.1.2.3 Scope exception for oil and gas conveyances ...................................................... 32

4.1.2.4 Decreases in ownership of a subsidiary that is not a business or

nonprofit activity ............................................................................................... 33

Contents

Financial reporting developments Consolidated and other financial statements ii

4.1.2.5 Issuance of preferred stock by a subsidiary ......................................................... 34

4.1.2.6 Decreases in ownership through issuance of partnership units that

have varying profit or liquidation preferences ..................................................... 34

4.1.3 Accumulated other comprehensive income considerations ............................................ 35

4.1.4 Accounting for foreign currency translation adjustments upon a change in

parent’s ownership interest without loss of control ....................................................... 36

4.1.5 Allocating goodwill upon change in parent’s ownership interest ..................................... 36

4.1.6 Accounting for transaction costs incurred in connection with changes in ownership........ 37

4.1.7 Chart summarizing accounting for changes in ownership .............................................. 37

4.2 Comprehensive example ...................................................................................................... 38

4.2.1 Consolidation at the acquisition date ............................................................................ 38

4.2.2 Consolidation in year of combination ............................................................................ 40

4.2.3 Consolidation after purchasing an additional interest .................................................... 42

4.2.4 Consolidation in year 2 ................................................................................................ 44

4.2.5 Consolidation after selling an interest without loss of control ......................................... 46

4.2.6 Consolidation in year 3 ................................................................................................ 47

5 Intercompany eliminations ....................................................................................... 50

5.1 Procedures for eliminating intercompany balances and transactions ...................................... 50

5.1.1 Effect of noncontrolling interest on elimination of intercompany amounts ...................... 51

6 Loss of control over a subsidiary or a group of assets ................................................ 63

6.1 Deconsolidation of a subsidiary or derecognition of certain groups of assets ........................... 63

6.1.1 Loss of control ............................................................................................................ 65

6.1.2 Nonreciprocal transfers to owners ............................................................................... 65

6.1.3 Gain/loss recognition................................................................................................... 66

6.1.4 Measuring the fair value of consideration received and any retained

noncontrolling investment ........................................................................................... 67

6.1.4.1 Accounting for contingent consideration in deconsolidation ................................. 68

6.1.4.2 Accounting for a retained creditor interest in deconsolidation .............................. 71

6.1.5 Accounting for accumulated other comprehensive income in deconsolidation ................ 71

6.1.6 Deconsolidation through multiple arrangements ........................................................... 71

6.1.7 Deconsolidation through a bankruptcy proceeding ........................................................ 72

6.1.8 Gain/loss classification and presentation ...................................................................... 73

6.1.9 Subsequent accounting for retained noncontrolling investment ..................................... 73


6.2.1 Deconsolidation by selling entire interest ...................................................................... 75

6.2.2 Deconsolidation by selling a partial interest .................................................................. 77

7 Combined financial statements ................................................................................. 79

7.1 Purpose of and procedures for combined financial statements ............................................... 79

7.1.1 Common management ................................................................................................ 79

7.1.2 Procedures applied in combining entities for financial reporting ..................................... 80

8 Parent-company financial statements ....................................................................... 81

8.1 Purpose of and procedures for parent-company financial statements ..................................... 81

8.1.1 Investments in subsidiaries .......................................................................................... 81

8.1.2 Investments in non-controlled entities .......................................................................... 82

8.1.3 Disclosure requirements .............................................................................................. 82

Contents

Financial reporting developments Consolidated and other financial statements iii

9 Presentation and disclosures .................................................................................... 83

9.1 Certain presentation and disclosure requirements related to consolidation ............................. 83

9.1.1 Consolidated statement of comprehensive income presentation .................................... 84

9.1.2 Reconciliation of equity presentation ........................................................................... 84

9.1.2.1 Presentation of redeemable noncontrolling interests in equity reconciliation ........ 85

9.1.2.2 Interim reporting period requirements ................................................................ 85

9.1.3 Consolidated statement of financial position presentation ............................................. 86

9.1.4 Consolidated statement of cash flows presentation ....................................................... 86

9.1.4.1 Presentation of transaction costs in statement of cash flow ................................. 87

9.1.5 Disclosure ................................................................................................................... 87


A Comprehensive example .......................................................................................... A-1

B Comparison of ASC 810 to IAS 27(R) ....................................................................... B-1

C Summary of important changes ............................................................................... C-1

D Abbreviations used in this publication ...................................................................... D-1

E Index of ASC references in this publication ............................................................... E-1

Contents

Financial reporting developments Consolidated and other financial statements iv

Notice to readers:

This publication includes excerpts from and references to the FASB Accounting Standards Codification

(the Codification or ASC). The Codification uses a hierarchy that includes Topics, Subtopics, Sections

and Paragraphs. Each Topic includes an Overall Subtopic that generally includes pervasive guidance for

the topic and additional Subtopics, as needed, with incremental or unique guidance. Each Subtopic

includes Sections that in turn include numbered Paragraphs. Thus, a Codification reference includes the

Topic (XXX), Subtopic (YY), Section (ZZ) and Paragraph (PP).

Throughout this publication references to guidance in the codification are shown using these reference

numbers. References are also made to certain pre-codification standards (and specific sections or

paragraphs of pre-Codification standards) in situations in which the content being discussed is excluded

from the Codification.

This publication has been carefully prepared but it necessarily contains information in summary form and

is therefore intended for general guidance only; it is not intended to be a substitute for detailed research

or the exercise of professional judgment. The information presented in this publication should not be

construed as legal, tax, accounting, or any other professional advice or service. Ernst & Young LLP can

accept no responsibility for loss occasioned to any person acting or refraining from action as a result of

any material in this publication. You should consult with Ernst & Young LLP or other professional

advisors familiar with your particular factual situation for advice concerning specific audit, tax or other

matters before making any decisions.

Portions of FASB publications reprinted with permission. Copyright Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 06856-5116, U.S.A. Portions of AICPA Statements of Position, Technical Practice Aids, and other AICPA publications reprinted with permission. Copyright American Institute of Certified Public Accountants, 1211 Avenue of the Americas, New York, NY 10036-8875, USA. Copies of complete documents are available from the FASB and the AICPA.

Financial reporting developments Consolidated and other financial statements 1

1 Consolidated financial statements

1.1 Objectives and scope

Excerpt from Accounting Standards Codification Consolidation — Overall

Objectives

General

810-10-10-1

The purpose of consolidated financial statements is to present, primarily for the benefit of the owners

and creditors of the parent, the results of operations and the financial position of a parent and all its

subsidiaries as if the consolidated group were a single economic entity. There is a presumption that

consolidated financial statements are more meaningful than separate financial statements and that

they are usually necessary for a fair presentation when one of the entities in the consolidated group

directly or indirectly has a controlling financial interest in the other entities.

Scope and Scope Exceptions

Entities

810-10-15-8

The usual condition for a controlling financial interest is ownership of a majority voting interest, and,

therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50

percent of the outstanding voting shares of another entity is a condition pointing toward consolidation.

The power to control may also exist with a lesser percentage of ownership, for example, by contract,

lease, agreement with other stockholders, or by court decree.

810-10-15-10

A reporting entity shall apply consolidation guidance for entities that are not in the scope of the Variable

Interest Entities Subsections (see the Variable Interest Entities Subsection of this Section) as follows:

a. All majority-owned subsidiaries — all entities in which a parent has a controlling financial interest —

shall be consolidated. However, there are exceptions to this general rule.

1. A majority-owned subsidiary shall not be consolidated if control does not rest with the

majority owner — for instance, if any of the following are present:

i. The subsidiary is in legal reorganization

ii. The subsidiary is in bankruptcy

iii. The subsidiary operates under foreign exchange restrictions, controls, or other

governmentally imposed uncertainties so severe that they cast significant doubt on the

parent's ability to control the subsidiary.

iv. In some instances, the powers of a shareholder with a majority voting interest to control

the operations or assets of the investee are restricted in certain respects by approval or

veto rights granted to noncontrolling shareholder (hereafter referred to as

noncontrolling rights). In paragraphs 810-10-25-2 through 25-14, the term

noncontrolling shareholder refers to one or more noncontrolling shareholders. Those

noncontrolling rights may have little or no impact on the ability of a shareholder with a



majority voting interest to control the investee's operations or assets, or, alternatively,

those rights may be so restrictive as to call into question whether control rests with the

majority owner.

v. Control exists through means other than through ownership of a majority voting

interest, for example as described in (b) through (e).

2. A majority-owned subsidiary in which a parent has a controlling financial interest shall not be

consolidated if the parent is a broker-dealer within the scope of Topic 940 and control is

likely to be temporary.

3. Except as discussed in paragraph 946-810-45-3, consolidation by an investment company

within the scope of Topic 946 of a non-investment-company investee is not appropriate.

b. Subtopic 810-20 shall be applied to determine whether the rights of the limited partners in a

limited partnership overcome the presumption that the general partner controls, and therefore

should consolidate, the partnership.

c. Subtopic 810-30 shall be applied to determine the consolidation status of a research and

development arrangement.

d. The Consolidation of Entities Controlled by Contract Subsections of this Subtopic shall be applied

to determine whether a contractual management relationship represents a controlling financial

interest.

e. Paragraph 710-10-45-1 addresses the circumstances in which the accounts of a rabbi trust that

is not a VIE (see the Variable Interest Entities Subsections for guidance on VIEs) shall be

consolidated with the accounts of the employer in the financial statements of the employer.

ASC 810 defines a subsidiary as an entity in which a parent has a controlling financial interest, whether

that controlling interest comes through voting interests or other means (for example, variable interests).

While consolidation policy is not the subject of this publication, in general, the first step in determining

whether an entity has a controlling financial interest in a subsidiary is to establish the basis on which the

investee is to be evaluated for control (that is, whether the consolidation determination should be based

on ownership of the investee’s outstanding voting interests or its variable interests). Accordingly, the

provisions of ASC 810-10’s variable interest model1 should first be applied to determine whether the

investee is a variable interest entity (VIE). Only if the entity is determined not to be a VIE should the

consolidation guidance for voting interest entities within ASC 810-10 be applied.

Once it is determined a parent has a controlling financial interest in an entity, the assets, liabilities and

any noncontrolling interests of that entity are accounted for in the parent’s consolidated financial

statements in accordance with the consolidation principles in ASC 810-10-45. These principles are

generally the same for entities consolidated under the voting interest and variable interest models.

Illustration 1-1 summarizes how ASC 810’s control framework should generally be applied to interests in

an entity.

1 Generally ASC 810-10 includes guidance with respect to the consolidation considerations for voting interest entities and variable

interest entities for each of ASC 810-10’s sections. In each of ASC 810-10’s sections there is a General subsection with respect to the consolidation model. This guidance applies to voting interest entities and also may apply to variable interest entities in certain circumstances. The Variable Interest Entities subsection within each of ASC 810-10’s sections contains considerations

with respect to variable interest entities. In referring to the Variable Interest Model in ASC 810-10, we are referring to the guidance applicable to variable interest entities in each of ASC 810-10’s sections.



Illustration 1-1: ASC 810, Consolidation Decision Tree

1 See our Financial reporting developments publication, Consolidation of variable interest entities, for guidance on silos and specified assets.

No Yes

Related party or de facto

agent consolidates entity

Does the enterprise,

including its related parties and de facto agents,

collectively have power and benefits?

Yes

Variable Interest Model

Is the entity being evaluated for consolidation a legal entity?

No

Yes

No

Yes

Yes

No

Does a scope exception to consolidation guidance (ASC 810) apply?

• Employee benefit plans

• Governmental organizations

• Certain investment companies

Does a scope exception to the Variable Interest Model apply?

• Not-for-profit organizations

• Separate accounts of life insurance companies

• Lack of information

• Certain businesses

Does the enterprise have a variable

interest in a legal entity?

Consider whether fees paid to a decision maker or a

service provider represent a variable interest

Apply other GAAP

Is the legal entity a variable interest entity?

• Does the entity have sufficient equity to finance its activities without additional subordinated financial support?

• Do the equity holders, as a group, lack the characteristics

of a controlling financial interest?

• Is the legal entity structured with non-substantive voting

rights (i.e., anti-abuse clause)?

Apply other GAAP

Consider whether silos exist or whether the interests or

other contractual arrangements of the entity (excluding

interests in silos) qualify as variable interests in the entity

as a whole1

Yes No

Is the enterprise the primary beneficiary (i.e., Does the enterprise individually have both

power and benefits)?

Variable Interest Model (cont.)

No Yes

Consolidate entity Does a related party or de facto agent

individually have power and benefits?

No

No Yes

Party most

closely associated with

VIE consolidates

Do not

consolidate

Do the minority shareholders

hold substantive participating rights or do certain other

conditions exist (e.g., legal subsidiary is in bankruptcy)?

No Yes

Do not consolidate

No Yes

Do not consolidate Consolidate entity

Voting model

The general partner (GP) is presumed to

have control unless that presumption can be overcome by one the following conditions:

• Can a simple majority vote of limited partners remove a general partner without cause and there are no barriers to the exercise that removal right?

• Do limited partners have substantive participating rights?

Consolidation of partnerships and

similar entities

Consolidation of corporations and

other legal entities

Does a majority shareholder, directly or

indirectly, have greater than 50% of the outstanding voting shares?

No Yes

GP does not consolidate the entity. In limited

circumstances a limited partner may consolidate

(e.g., a single limited partner that has the ability to liquidate

the limited partnership or kick out the general partner

without cause).

GP consolidates entity



Note:

The FASB currently has a consolidation project on its agenda to amend ASC 810. The FASB’s tentative

decisions would modify the provisions for evaluating an enterprise as a principal or an agent and the

provisions for evaluating the substance of kick-out rights and participating rights, among other things.

Additionally, the tentative decisions would modify the literature in ASC 810-20 used to reach

consolidation conclusions for limited partnerships and similar entities. Readers should monitor

developments in this area closely.

1.2 Consolidation procedure — time of acquisition

An entity may acquire a controlling financial interest in a subsidiary through a single step or through

multiple steps over time.

1.2.1 Acquisition through single step

ASC 805 provides guidance when an acquirer obtains control of an acquiree through a single investment,

often referred to as a ―single-step acquisition.‖ Single step acquisitions are perhaps the most

recognizable form of business combination. ASC 805 requires an acquirer to recognize the assets

acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, generally measured at

their fair values as of the acquisition date. These concepts are discussed further in our FRD, Business

combinations. The comprehensive example in Chapter 4 includes an example of the accounting for a

single-step acquisition. See Section 4.2, Illustration 4-9; Section 4.2.1, Illustration 4-10; and Section

4.2.2, Illustration 4-11.

1.2.2 Acquisition through multiple steps

An acquirer may obtain control of an acquiree through a series of two or more investments, which is

commonly referred to as a ―step acquisition.‖ or, in ASC 805, as a ―business combination achieved in

stages.‖ Under ASC 805, if the acquirer holds a noncontrolling equity investment in the acquiree

immediately before obtaining control, the acquirer should first remeasure that investment to fair value as

of the acquisition date and recognize any remeasurement gain or loss in earnings. If, before obtaining

control, an acquirer recognized changes in the value of its noncontrolling investment in the target in

other comprehensive income (that is, the investment was classified as available-for-sale in accordance

with ASC 320), the amount recognized in other comprehensive income as of the acquisition date should

be reclassified from other comprehensive income and included in the recognized remeasurement gain or

loss as of the acquisition date. The acquirer then should apply ASC 805’s business combination guidance,

as discussed in our FRD, Business combinations.

After taking control of a target company, further acquisitions of ownership interests (i.e., acquisitions of

noncontrolling ownership interests with no changes in control) are accounted for as transactions among

shareholders within equity pursuant to the guidance in ASC 810 (refer to Chapter 4).

Illustration 1-2 summarizes these concepts.



Illustration 1-2: Summary of guidance applied for acquisitions of an interest in an entity

Acquisition of an

interest prior to

obtaining control

Apply other GAAP (ASC 320, ASC 323 and ASC 815, among others).

Acquisition of an

additional interest,

which provides control

First, remeasure the previously held interest (i.e., the interest held before

obtaining control, if any) at fair value, recognizing any gain or loss in

earnings. Next, measure and consolidate (generally at fair value) the net

assets acquired and any noncontrolling interests, in accordance with ASC

805. (Refer to our FRD, Business combinations, for further interpretive

guidance).

Acquisition of an

additional interest,

after control has

already been obtained*

Reduce the carrying amount of the noncontrolling interest. Recognize any

difference between the consideration paid and the reduction to the

noncontrolling interest in equity attributable to the controlling interest.

(See Chapter 4 for further interpretive guidance).

* See Section 4.1.2 for further discussion of this accounting.

1.3 Proportionate consolidation


Other Presentation Matters

810-10-45-14

If the investor-venturer owns an undivided interest in each asset and is proportionately liable for its

share of each liability, the provisions of paragraph 323-10-45-1 may not apply in some industries. For

example, in certain industries the investor-venturer may account in its financial statements for its pro

rata share of the assets, liabilities, revenues, and expenses of the venture. Specifically, a

proportionate gross financial statement presentation is not appropriate for an investment in an

unincorporated legal entity accounted for by the equity method of accounting unless the investee is in

either the construction industry (see paragraph 910-810-45-1) or an extractive industry (see

paragraphs 930-810-45-1 and 932-810-45-1). An entity is in an extractive industry only if its

activities are limited to the extraction of mineral resources (such as oil and gas exploration and

production) and not if its activities involve related activities such as refining, marketing, or

transporting extracted mineral resources.

Real Estate — General — Investments — Equity Method and Joint Ventures

Recognition

970-323-25-12

If real property owned by undivided interests is subject to joint control by the owners, the investor-

venturers shall not present their investments by accounting for their pro rata share of the assets,

liabilities, revenues, and expenses of the ventures. Most real estate ventures with ownership in the

form of undivided interests are subject to some level of joint control. Accordingly, such investments

shall be presented in the same manner as investments in noncontrolled partnerships.



The use of the proportionate gross financial statement presentation method (that is, proportionate

consolidation, as described in ASC 810-10-45-14) is permitted only in the following circumstances: a)

investments in certain unincorporated legal entities in the extractive or construction industry that

otherwise would be accounted for under the equity method of accounting (i.e., a controlling interest does

not exist), and b) ownership of an undivided interest in real property when each owner is entitled only to

its pro rata share of income and expenses and is proportionately (i.e., severally) liable for its share of

each liability, and the real property owned is not subject to joint control by the owners.

1.4 Differing fiscal year-ends between parent and subsidiary


Objectives

General

Differing Fiscal Year-Ends Between Parent and Subsidiary

810-10-15-11

A difference in fiscal periods of a parent and a subsidiary does not justify the exclusion of the

subsidiary from consolidation.


Differing Fiscal Year-Ends Between Parent and Subsidiary

810-10-45-12

It ordinarily is feasible for the subsidiary to prepare, for consolidation purposes, financial statements

for a period that corresponds with or closely approaches the fiscal period of the parent. However, if

the difference is not more than about three months, it usually is acceptable to use, for consolidation

purposes, the subsidiary's financial statements for its fiscal period; if this is done, recognition should

be given by disclosure or otherwise to the effect of intervening events that materially affect the

financial position or results of operations

810-10-45-13

A parent or an investor should report a change to (or the elimination of) a previously existing

difference between the parent's reporting period and the reporting period of a consolidated entity or

between the reporting period of an investor and the reporting period of an equity method investee in

the parent's or investor's consolidated financial statements as a change in accounting principle in

accordance with the provisions of Topic 250. While that Topic generally requires voluntary changes in

accounting principles to be reported retrospectively, retrospective application is not required if it is

impracticable to apply the effects of the change pursuant to paragraphs 250-10-45-9 through 45-10.

The change or elimination of a lag period represents a change in accounting principle as defined in

Topic 250. The scope of this paragraph applies to all entities that change (or eliminate) a previously

existing difference between the reporting periods of a parent and a consolidated entity or an investor

and an equity method investee. That change may include a change in or the elimination of the

previously existing difference (lag period) due to the parent's or investor's ability to obtain financial

results from a reporting period that is more consistent with, or the same as, that of the parent or

investor. This paragraph does not apply in situations in which a parent entity or an investor changes its

fiscal year-end.



Disclosure

810-10-50-2

An entity should make the disclosures required pursuant to Topic 250. This paragraph applies to all

entities that change (or eliminate) a previously existing difference between the reporting periods of a

parent and a consolidated entity or an investor and an equity method investee. This paragraph does

not apply in situations in which a parent entity or an investor changes its fiscal year-end.

If there is a difference between a parent’s fiscal year end and a subsidiary’s fiscal year end, the parent

may use the subsidiary’s financial statements for consolidation purposes, provided the difference is not

more than about three months (i.e., 93 days per Rule 3A-02(b) of Regulation S-X). When the fiscal year

ends do differ, a parent should disclose the effect of intervening events that, if recognized, would

materially affect the consolidated financial position or results of operations.

If a parent elects to change or eliminate an existing difference in fiscal periods, the parent would report

this as a change in accounting principle in accordance with the provisions of ASC 250. This guidance

does not apply, however, in situations in which a parent entity changes its fiscal year-end.


2 Nature and classification of the noncontrolling interest

2.1 Noncontrolling interests


Glossary

810-10-20

Noncontrolling Interest

The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A

noncontrolling interest is sometimes called a minority interest.


Nature and Classification of the Noncontrolling Interest in the Consolidated Statement of Financial

Position

810-10-45-15

The ownership interests in the subsidiary that are held by owners other than the parent is a

noncontrolling interest. The noncontrolling interest in a subsidiary is part of the equity of the

consolidated group.

810-10-45-16

The noncontrolling interest shall be reported in the consolidated statement of financial position within

equity, separately from the parent’s equity. That amount shall be clearly identified and labeled, for

example, as noncontrolling interest in subsidiaries (see paragraph 810-10-55-41). An entity with

noncontrolling interests in more than one subsidiary may present those interests in aggregate in the

consolidated financial statements.

810-10-45-16A

Only either of the following can be a noncontrolling interest in the consolidated financial statements:

a. A financial instrument (or an embedded feature) issued by a subsidiary that is classified as equity

in the subsidiary’s financial statements

b. A financial instrument (or an embedded feature) issued by a parent or a subsidiary for which the

payoff to the counterparty is based, in whole or in part, on the stock of a consolidated subsidiary,

that is considered indexed to the entity’s own stock in the consolidated financial statements of the

parent and that is classified as equity.

810-10-45-17

A financial instrument issued by a subsidiary that is classified as a liability in the subsidiary’s financial

statements based on the guidance in other Subtopics is not a noncontrolling interest because it is not

an ownership interest. For example, Topic 480 provides guidance for classifying certain financial

instruments issued by a subsidiary.



810-10-45-17A

An equity-classified instrument (including an embedded feature that is separately recorded in equity

under applicable GAAP) within the scope of the guidance in paragraph 815-40-15-5C shall be

presented as a component of noncontrolling interest in the consolidated financial statements whether

the instrument was entered into by the parent or the subsidiary. However, if such an equity-classified

instrument was entered into by the parent and expires unexercised, the carrying amount of the

instrument shall be reclassified from the noncontrolling interest to the controlling interest.

Note:

This chapter introduces certain concepts related to the accounting for financial instruments that may

have embedded features. Given the complexity of the relevant authoritative literature and the

significant judgment required to apply that literature, it may be important to consult additional

guidance when accounting for these instruments and their related features.

ASC 810-10 indicates that a noncontrolling interest in an entity is any equity interest in a consolidated

entity that is not attributable to the parent. ASC 810-10 requires that the noncontrolling interest be

classified as a separate component of consolidated equity.

In ASC 810-10, the FASB concluded that a noncontrolling interest in an entity meets the definition of

equity in Concepts Statement 6, which defines equity (or net assets) as, ―the residual interest in the

assets of an entity that remains after deducting its liabilities.‖ A noncontrolling interest represents a

residual interest in the assets of a subsidiary within a consolidated group and is, therefore, consistent

with the definition of equity in Concepts Statement 6. The noncontrolling interest is presented separately

from the equity of the parent so that users of the consolidated financial statements can distinguish the

parent’s equity from the equity attributable to the noncontrolling interest (that is, equity of the

subsidiary held by owners other than the parent).

To be classified as equity in the consolidated financial statements, the instrument issued by the

subsidiary should be classified as equity by the subsidiary based on other authoritative literature. If the

instrument is classified as a liability in the subsidiary’s financial statements (e.g., under any of the

guidance in ASC 480), it cannot be presented as noncontrolling interest in the consolidated entity’s

financial statements because that instrument does not represent an ownership interest in the

consolidated entity under US GAAP.

For example, mandatorily redeemable preferred shares issued by a subsidiary would be classified as a

liability in the subsidiary’s financial statements pursuant to ASC 480. The preferred shares would not be

classified as noncontrolling interest in the consolidated financial statements.

2.2 Equity derivatives issued on the stock of a subsidiary

It is common for a parent and the noncontrolling interest holders of a subsidiary to enter into

arrangements whereby they may do one or more of the following:

• Grant the noncontrolling interest holders an option to sell their equity interests in the subsidiary to

the parent

• Grant the parent an option to acquire the equity interests in the subsidiary held by the noncontrolling

holders

• Obligate the parent to acquire and the noncontrolling holders to sell their equity interests in the

subsidiary



Those arrangements can take the form of options (written or purchased, puts or calls), forwards (date-

certain or contingent) or even swap-like contracts. In some cases, the arrangements may be papered

between the parent and the noncontrolling interest holders, and in other cases between the subsidiary

and the noncontrolling interest holders.

The various options and forwards described above are contracts on the shares (common or preferred) of

a subsidiary. If the underlying share is classified in equity (as noncontrolling interest), the equity

derivatives2 on the noncontrolling interest should be separately evaluated to determine their

classification.

The accounting in this area can be complex because of the variety of authoritative guidance that should

be considered and the terms of the transaction. For example, (1) the equity derivative may be entered

into contemporaneously with the creation of the noncontrolling interest or subsequent to its creation, (2)

the form of the equity derivative (that is, whether it is embedded or freestanding) can be determinative

and (3) the strike price of the equity derivative may be set at either a fixed or variable (formulaic) price or

at fair value. Each of those variations can affect the accounting.

The following summarizes, at a high level, the relevant accounting considerations applicable to equity

derivatives associated with noncontrolling interest.

2.2.1 Is the equity derivative embedded in the noncontrolling interest or freestanding?

The first step in accounting for an equity derivative associated with a noncontrolling interest is to

determine whether the equity derivative is an embedded feature in the noncontrolling interest or a

freestanding financial instrument, because the accounting can be significantly different. For example, the

accounting for a freestanding written put on a subsidiary’s shares is different than that for puttable

shares issued by the subsidiary. While ASC 480 provides little interpretive guidance on the definition of a

―freestanding‖ financial instrument, we believe that the substance of a transaction should be considered

in making this determination.

The determination of whether an instrument is embedded or freestanding involves understanding both

the form and substance of the transaction, and may involve substantial judgment. In this regard,

documenting an instrument in a separate contract is not necessarily determinative that it is freestanding,

particularly when a contract is entered into in conjunction with another transaction. If the transactions

are between the same parties and involve the same underlying (in this context, the issuer’s shares), it is

important to assess whether the instruments are (1) legally detachable and (2) separately exercisable.

Those concepts can be further described as follows:

• Legally detachable — Generally, whether two instruments can be legally separated and transferred

such that the two components may be held by different parties.

• Separately exercisable — Generally, whether one instrument can be exercised without terminating

the other instrument (e.g., through redemption, simultaneous exercise, or expiration).

If the exercise of one instrument must result in the termination of the other, the instruments would

generally not be considered freestanding pursuant to ASC 480. On the other hand, if one instrument can

be exercised while the other instrument continues to be outstanding, the instruments would be

considered freestanding under ASC 480.

2 This chapter refers to ―derivatives‖ in the common use of the word, not just instruments that meet the definition of a derivative in ASC 815-10-15.



For example, if a parent enters into a contract with the only minority shareholder of its privately held

subsidiary that permits the shareholder to put its shares in the subsidiary to the parent at a fixed price,

that put option generally would be considered to be embedded in the related shares. In contrast, if the

same parent enters into a put option on publicly traded common stock of a different subsidiary, and that

put option permits the counterparty to put any common shares of the subsidiary to the parent at a fixed

price (e.g., the counterparty could put shares of the subsidiary already owned or buy shares in the

market), that written put option would be considered freestanding, provided that it is also legally

detachable from the shares.

2.2.1.1 Equity derivatives considered embedded

If the equity derivative is considered a feature embedded in the subsidiary’s shares, that embedded

feature should be analyzed to determine whether the shares should be a mandatorily redeemable financial

instrument subject to ASC 480 or, if the shares are not a liability, whether the feature should be bifurcated.

To determine whether the embedded feature should be bifurcated, the hybrid instrument (the

subsidiary’s shares and embedded feature) should be evaluated under ASC 815-15. In many cases,

unless the subsidiary itself is a publicly traded entity, the feature will not meet the definition of a

derivative pursuant to ASC 815-10-15 because those features usually require gross physical settlement

or the transfer of the full amount of consideration payable in exchange for the full number of underlying

nonpublic subsidiary shares. As the underlying nonpublic shares are not readily convertible to cash, this

gross physical settlement does not meet any of the forms of net settlement pursuant to ASC 815-10-15-

99. However, if the instrument meets the definition of a derivative, it should be evaluated under

ASC 815-10-15-74(a) to determine if an exception from bifurcation is available.3

The exception in ASC 815-10-15-74(a) is applicable if the feature is considered indexed to the issuer’s

own stock and would be classified in equity. ASC 815-40 includes guidance that should be considered in

making this determination. There are special considerations as to whether the feature is considered

indexed to the issuer’s own stock when subsidiary shares are involved, as discussed in ASC 815-40-15-5C.

If an equity derivative is (1) deemed to be embedded and (2) the entire instrument is not a liability, the

redeemable equity guidance should be considered (see Section 2.2.3 below).

2.2.1.2 Equity derivatives considered freestanding

An equity derivative that is considered a freestanding financial instrument should be evaluated pursuant

to ASC 480 to determine whether liability classification is required as, for the purposes of ASC 480, an

issuer’s equity share includes the equity shares of any entity whose financial statements are included in

the consolidated financial statements. Instruments that may require the issuer to transfer cash or other

assets in exchange for its own shares are among those classified as liabilities pursuant to ASC 480. For

example, a physically settled forward contract that requires the parent to pay cash in exchange for the

subsidiary’s shares is within the scope of ASC 480. Further, a freestanding written put option on the

subsidiary’s shares is also a liability under ASC 480 regardless of whether it settled gross or net.

If the equity derivative is not a liability pursuant to ASC 480, the instrument should be evaluated to

determine whether it is a derivative pursuant to ASC 815. Similar to the analysis of an embedded feature

in the subsidiary’s shares, frequently, it will not meet the definition of a derivative because it lacks net

settlement. Even if the contract meets the definition of a derivative, it may still qualify for a scope

exception from derivative accounting pursuant to ASC 815-10-15-74(a), which considers the guidance in

ASC 815-40. If the equity derivative does not meet the definition of a derivative, that same guidance in

ASC 815-40 is applied to determine the contract’s classification.

3 The embedded feature would be considered a derivative if the underlying shares were publicly traded. If the feature meets the net settlement criterion by way of a required or alternative settlement in net cash or net shares, the conclusion that the feature

was embedded should be revisited.



2.2.2 Equity derivatives deemed to be financing arrangements

In limited situations, a parent may enter into an equity derivative to acquire a subsidiary’s shares that

should be accounted for as a financing of the parent’s purchase of the minority interest. In those

situations, equity derivatives are entered into between the parent and minority interest holder at the

inception of noncontrolling interest that require physical settlement. The contracts may be either (1) a

fixed-priced forward to buy the remaining interest in the subsidiary at a stated future date and the

forward is considered freestanding or (2) combination of a purchased call option and written put option

with same (or not significantly different) fixed strike price and same fixed exercise date that are

embedded in the shares.4

Essentially, the parent consolidates 100% of the subsidiary and does not recognize the noncontrolling

interest at the consolidated entity level, but rather a liability for the financing (i.e., the future purchase of

the noncontrolling interest). In those circumstances, the risks and rewards of owning the noncontrolling

interest have been obtained by the parent during the period of the equity derivative, even though the

legal ownership of the noncontrolling interest is still retained by the noncontrolling interest holders.

Essentially, combining the equity derivative and the noncontrolling interest reflects the substance of the

transaction; that is, the noncontrolling interest holder is financing the noncontrolling interest.

ASC 480-10-55-54 states that the forward contract should be recognized as a liability, initially measured

at the present value of the fixed forward price. Subsequently, the liability is accreted to the fixed forward

price over the term of the forward contract with the resulting expense recognized as interest cost.

Similar accounting and measurement would be applied to the combined noncontrolling interest and

embedded options.

The initial measurement guidance in ASC 480-10-55-54 is not consistent with the general initial

measurement requirement of ASC 480 for physically settled forward purchase contracts. The general

measurement guidance in ASC 480-10-30-3 states that a freestanding physically settled forward

contract should be measured initially at the fair value of the underlying shares at inception, adjusted for

any consideration or unstated rights or privileges. While the methods are different, we generally believe

that they should result in approximately the same initial measurement. Any significant differences would

require additional analysis to determine if there are additional rights or privileges in the transaction.

2.2.3 Application of the redeemable equity guidance

Generally, an embedded feature, whether or not bifurcated, that permits or requires the noncontrolling

interest holder to deliver the subsidiary’s interests in exchange for cash or other assets from the controlling

entity (or the subsidiary itself) will result in the noncontrolling interest being considered redeemable equity.

Public entities should consider the SEC staff’s guidance (included in codification at ASC 480-10-S99-3A) on

redeemable equity securities when classifying redeemable noncontrolling interest. Those interests should

first follow the accounting and measurement guidance in ASC 810-10 (including allocation of earnings,

adjustments for dividends, etc.). The SEC’s guidance should then be considered, which could affect the

classification (presented in the mezzanine rather than in equity), and if so, may also adjust the

measurement of any noncontrolling interest and the related earnings per share calculations.

4 ASC 480-10-55-53 through 55-56 describe three different derivative instruments indexed to the stock of a consolidated subsidiary. One instrument includes a written put and purchased call. ASC 480-10-55-55 provides for three different ways to account for the written put and purchased call, based on how the instruments were issued relative to the noncontrolling interest

(i.e., freestanding from or embedded in the noncontrolling interest). ASC 480-10-55-59 suggests that when the written put/purchased call are freestanding, they should be combined with the noncontrolling interest and accounted for as a financing. This accounting is not one of the three ways described in ASC 480-10-55-55. We believe the guidance in ASC 480-10-55-59 is

inconsistent with the guidance formerly in EITF 00-4, ―Majority Owner's Accounting for a Transaction in the Shares of a Consolidated Subsidiary and a Derivative Indexed to the Minority Interest in That Subsidiary.‖ As the Codification was not intended to change GAAP, we believe ASC 480-10-55-55 should be followed unless ASC 815 requires the options to be combined

with the noncontrolling interest, in which case the accounting described in ASC 480-10-55-60 through 55-62 should be followed.



In certain instances, the issuer may be required, or may have a choice, to exchange the subsidiary’s

interests by delivery of its own shares, rather than cash or other assets. In those instances, the SEC

staff’s guidance requires the issuer to consider the guidance in ASC 815-40-25-7 through 25-35 to

determine whether it can deliver the shares that could be required under the settlement of the exchange.

If the issuer does not completely control settlement by delivery of its own shares (i.e., it cannot satisfy

the settlement in shares), cash settlement would be presumed and temporary classification may be

required for the noncontrolling interest.

2.2.3.1 Measurement and reporting issues related to redeemable equity securities

Redeemable noncontrolling interest is required to be initially measured at the initial carrying amount of

the noncontrolling interest pursuant to the guidance in ASC 805-20-30. While that will generally be fair

value, the guidance in ASC 805-20-30 should be considered.

For all companies, both public and nonpublic, noncontrolling interest is first accounted for pursuant to

ASC 810. If the noncontrolling interest is considered redeemable pursuant to ASC 480-10-S99-3A, the

redeemable noncontrolling interest is presented in temporary equity. The measurement guidance is not

applied in lieu of the accounting for noncontrolling interest under ASC 810. Rather, it is an incremental

measurement that starts with the carrying amount pursuant to ASC 810 and adjusts for any increase

(but not decrease) to the carrying amount of temporary equity.

As a result, a parent should first attribute net income or loss of the subsidiary and related dividends to the

noncontrolling interest pursuant to ASC 810. After that attribution, the issuer should consider the

provisions of ASC 480-10-S99-3A to determine whether any further adjustments are necessary to

increase the carrying value of redeemable noncontrolling interest. The amount presented in temporary

equity should be the greater of the noncontrolling interest balance determined pursuant to ASC 810 or

the amount determined pursuant to ASC 480-10-S99-3A.

Pursuant to ASC 480-10-S99-3A, a security (including noncontrolling interest) that is currently

redeemable is measured at the current redemption amount. For a security that is not redeemable

currently, but will become redeemable in the future, the SEC guidance permits the following two methods

of adjusting the carrying amount of the redeemable security:

• Method 1 — Adjust the carrying amount of the redeemable security to what would be the redemption

amount assuming the security was redeemable at the balance sheet date.

• Method 2 — Accrete the carrying amount of the redeemable security to the redemption amount over

time, to the date it is probable5 it will become redeemable, using an appropriate method (e.g., the

interest method).

The SEC guidance does not specify which method is required. We generally believe issuers should

evaluate the specific facts and circumstances of the applicable redemption feature and the level of

subjectivity and assumptions necessary and apply the method that best presents the economics of the

redeemable noncontrolling interest. Once the method is selected, it should be consistently applied.

Paragraph 16e of ASC 480-10-S99-3A states that the amount in temporary equity should not be less

than the redeemable instrument’s initial amount reported in temporary equity. It further states that

reductions in the carrying amount of a temporary equity instrument are appropriate only to the extent of

increases in the redeemable instrument’s carrying amount from the application of the SEC guidance. We

generally believe only the incremental measurement pursuant to the SEC staff’s guidance is subject to

this requirement. An issuer could potentially adjust a redeemable noncontrolling interest’s balance below

its initial carrying amount when applying ASC 810.

5 The ASC master glossary defines probable as: ―the future event or events are likely to occur.‖



2.2.4 Earnings per share considerations

As noted in ASC 480-10-S99-3A paragraph 22, adjustments to the carrying amount of redeemable

noncontrolling interest from the application of the SEC guidance do not affect net income or comprehensive

income in the consolidated financial statements. However, the adjustments may affect earnings per share

(EPS). The effect, if any, will depend on (1) whether the noncontrolling interest is represented by the

subsidiary’s common shares or preferred shares and (2) if common shares, whether the redemption amount

is at the then-current fair value or some other value (e.g., a formulaic value or fixed amount).

Refer to Section 3.2.2 of our FRD, Earnings per share, for further discussion of the EPS effects of

redeemable equity instruments (including redeemable noncontrolling interest).

2.2.5 Examples of the presentation of noncontrolling interests with equity derivatives issued on those interests

The following table summarizes the accounting for certain common equity derivatives used to acquire

interests in a subsidiary. This table assumes the equity derivatives are issued on all of the outstanding

noncontrolling interest (i.e., for the fixed number of shares not held by the parent) and are entered into by

the controlling interest.

This table should be applied only after determining (1) when the equity derivative was entered into

relative to the creation of the noncontrolling interest 6 (2) whether its price is fixed, variable or at fair

value and (3) whether the instrument is embedded or freestanding. It should be used as a starting point

in applying the literature. Parenthetical references cite the relevant literature. Application of ASC 480-

10-S99-3A is not specifically provided in the table, but references are made where the SEC staff’s

guidance would be an additional consideration.

This table, necessarily, does not contemplate all possible instruments and assumes subsidiaries represent

substantive entities as contemplated in ASC 815-40-15-5C. Careful consideration of the individual facts

and circumstances will be necessary to determine the appropriate accounting for any instrument issued

on noncontrolling interest.

Instrument Entered into Redemption amount Accounting

Written put option permitting the

noncontrolling interest holder to put its interest to

the controlling interest

Contemporaneous with creation of

noncontrolling interest

Fixed, fair value or variable

If embedded

If the embedded written put option does not require bifurcation

pursuant to ASC 815-15, the put option is recognized as part of the noncontrolling interest. Changes in the fair value of the option over its life are not recognized. Earnings are generally attributed

to the controlling interest and noncontrolling interests without considering the put option.

If the embedded put option is exercised, the noncontrolling

interest is reduced and APIC is adjusted for any difference between the noncontrolling interest’s carrying value and the consideration paid.7

For SEC reporting, additional consideration of ASC 480-10-S99-3A is required for the noncontrolling interest.

6 This table assumes that equity derivatives issued subsequent to the creation of the noncontrolling interest are freestanding.

Depending on individual facts and circumstances, certain equity derivatives issued subsequent to the creation of the noncontrolling interest could be considered embedded. If the instrument is considered to be embedded, the guidance on equity derivatives embedded in the noncontrolling interest should be applied, and the guidance in ASC 480-10-S99-3A should be considered.

7 ASC 810-10 requires transactions between the controlling interest and noncontrolling interest that do not result in consolidation

or deconsolidation to be recognized in equity.




If freestanding

ASC 480 requires it to be classified as a liability and measured at fair value with the changes in value recognized in earnings.

The exercise of the option results in the acquisition of noncontrolling interest and any difference between the cash paid and the combined value of the freestanding instrument and

noncontrolling interest’s carrying value would be recorded to APIC.

If embedded and bifurcated

The written put option is bifurcated and reported separately at

fair value with changes in fair value recorded in earnings. The noncontrolling interest is recognized and measured pursuant to ASC 810.

For SEC reporting, additional consideration of ASC 480-10-S99-3A is required for the host equity derivative.

Subsequent to creation of noncontrolling

interest


The written put option is recognized as a liability that is initially and subsequently measured at fair value pursuant to ASC 480. The noncontrolling interest is recognized and measured in

accordance with ASC 810.

Purchased call option permitting

the controlling interest to acquire the noncontrolling

interest

Contemporaneous with creation of



If embedded

If the embedded purchased call option does not require bifurcation

pursuant to ASC 815-15, the call option is recognized as part of the noncontrolling interest. Changes in the fair value of the option over its life are not recognized. Earnings are generally attributed

to the controlling interest and noncontrolling interests without considering the call option.

If the embedded call option is exercised, the noncontrolling

interest is reduced and APIC is adjusted for any difference between the noncontrolling interest’s carrying value and the consideration paid.

If (1) freestanding and in the scope of ASC 815-10 or (2) bifurcated

The purchased call option is reported separately and measured at

fair value with changes in value recognized in earnings. The noncontrolling interest is recognized and measured pursuant to ASC 810.

If freestanding and not in the scope of ASC 815-10

Follow ASC 815-40 to determine the appropriate classification and subsequent measurement of the instruments as an asset or equity.

(ASC 815-40-25-1 through 25-43)

The noncontrolling interest continues to be recognized pursuant to ASC 810.

For a freestanding call option classified as equity pursuant to ASC 815-40, if the call option is not exercised and were entered into by the parent, the carrying amount of the instrument should

be reclassified from the noncontrolling interest to the controlling interest. If it is not exercised and were entered into by the subsidiary, there is no reclassification to be made.

The 1986 AICPA Options Paper provides potential measurement alternatives to be evaluated if it were determined that neither ASC 815-10 nor ASC 815-40 applied.




Subsequent to creation of noncontrolling

interest


If freestanding and in the scope of ASC 815-10

The freestanding purchased call option is reported separately and measured at fair value with changes in value recognized in

earnings. The noncontrolling interest is recognized and measured pursuant to ASC 810.

If freestanding and not in the scope of ASC 815-10

Follow ASC 815-40 to determine the appropriate classification and subsequent measurement of the instruments as an asset or equity. (ASC 815-40-25-1 through 25-43 )

The noncontrolling interest continues to be recognized pursuant to ASC 810.

For a freestanding call option classified as equity pursuant to

ASC 815-40, if the call option is not exercised and were entered into by the parent, the carrying amount of the instrument should be reclassified from the noncontrolling interest to the controlling

interest. If it is not exercised and were entered into by the subsidiary, there is no reclassification to be made.

The 1986 AICPA Options Paper provides potential measurement

alternatives to be evaluated if it were determined that neither ASC 815-10 nor ASC 815-40 applied.

Forward contract to acquire the noncontrolling

interest

Contemporaneous with creation of noncontrolling

interest

Payment amount and settlement date are fixed

If embedded

The noncontrolling interest would be a mandatorily redeemable financial instrument classified as a liability pursuant to ASC 480-10-

30-1 and measured initially at fair value.8 Noncontrolling interest is not recognized and no earnings are allocated to the noncontrolling interest. The parent accounts for this transaction as a financing and

recognizes 100% of the subsidiary’s assets and liabilities.

If freestanding

The forward contract is classified as a liability and initially measured

at an appropriate value.9 The liability is accreted to the settlement amount over the term of the forward contract with the resulting expense recognized as interest cost. Noncontrolling interest is not

recognized and no earnings are allocated to the noncontrolling interest.. The parent accounts for this transaction as a financing and recognizes 100% of the subsidiary’s assets and liabilities.

(ASC 480-10-30-3 and ASC 480-10-55-53 through 55-54)

When the forward contract is settled, the liability is derecognized.

8 Subsequently, whether the measurement requirements of ASC 480-10 or ASC 480-10-S99 would be required depends on the application of the transition guidance in ASC 480-10-65-1(b). If the measurement guidance under ASC480-10 is applicable, the liability is measured at the present value of the amount to be paid at settlement, accruing interest cost using the rate implicit at

inception based on the initial measurement. 9 When addressing the initial measurement of a forward contract on shares of a subsidiary, there are three conflicting

measurement models. A freestanding forward contract under ASC 480-10-30-3 is initially measured at the fair value of the shares to be repurchased, adjusted for any consideration or unstated rights or privileges. A freestanding forward contract under

ASC 480-10-55-54 is initially measured at the present value of the contract amount, which we believe should be discounted using a market-based rate reflecting the issuer’s own credit risk. A mandatorily redeemable noncontrolling interest is measured at fair value under ASC 480-10-30-1. We generally believe that these methods should result in approximately the same initial

measurement. Any significant differences would require additional analysis to determine if there were additional rights or privileges granted in the transaction.





interest

Payment amount or settlement date vary based on certain

conditions

If embedded

The resulting mandatorily redeemable financial instrument is a liability pursuant to ASC 480 and measured initially at fair value.10

Noncontrolling interest is not recognized and no earnings are allocated to the noncontrolling interest. The parent accounts for this transaction as a financing and recognizes 100% of the

subsidiary’s assets and liabilities.

If freestanding

The forward contract is not subject to ASC 480-10-55-54 as the

settlement price is not fixed. Pursuant to other sections of ASC 480, a liability should be recognized at the fair value of the shares at inception, adjusted for any consideration or unstated

rights or privileges. The liability is subsequently measured at the amount that would be paid on the reporting date with any change in value from the previous reporting date recognized as interest

cost. Noncontrolling interest is not recognized and no earnings are allocated to the noncontrolling interest. The parent accounts for this transaction as a financing and recognizes 100% of the

subsidiary’s assets and liabilities.

Forward contract

to acquire the noncontrolling interest

(continued)

Subsequent to

creation of noncontrolling interest

Payment amount and

settlement date are fixed

Pursuant to ASC 480, the freestanding forward contract is

recognized as a liability at the date on which the forward contract was entered into. The liability is initially measured at the fair value of the shares at inception adjusted for any consideration or

unstated rights or privileges. Subsequent measurement is at the present value of the amount to be paid at settlement, accruing interest cost using the rate implicit at inception based on the initial

measurement. The previously recognized noncontrolling interest is derecognized and any difference between the amount of the liability and the noncontrolling interest’s carrying amount is

recognized in APIC. No further attribution of earnings is necessary because there is no noncontrolling interest.

Either payment

amount or settlement date varies based on certain conditions

Same as the accounting if the settlement date is fixed except that

the liability is subsequently measured at the amount that would be paid on the reporting date with any change in value from the previous reporting date recognized as interest cost. No further

attribution of earnings is necessary because there is no noncontrolling interest.

10 Whether the subsequent measurement requirements of ASC 480-10 or ASC 480-10-S99 would be required depends on the application of the transition guidance in ASC 480-10-65-1(b). If the measurement guidance under ASC480-10 is applicable, the liability is subsequently measured at the settlement amount as if settlement occurred at the reporting date. Facts and

circumstances should be considered in determining the measurement amount that best represents economics of the mandatorily redeemable noncontrolling interest.




Written put option and purchased call option with

same (or not significantly different) strike

price and same exercise date


interest

Fixed Price If embedded11

Pursuant to ASC 480-10-55-59 through 55-62, the options are viewed on a combined basis with the noncontrolling interest. The

combined instrument is classified as a liability, initially measured at the present value of the settlement amount.12 Subsequently, the liability is accreted to the strike price with the accretion recognized

as interest expense. Noncontrolling interest is not recognized and earnings are not attributed. The parent accounts for this transaction as a financing and consolidates 100% of the subsidiary. (ASC 480-

10-55-55, 55-59 and 55-62)


The combined option is reported separately at fair value with

changes in fair value recorded in earnings. The noncontrolling interest is recognized and measured pursuant to ASC 810.

For SEC reporting, additional consideration of ASC 480-10-S99-3A

is required for the host equity derivative.

If freestanding

The written put and purchased call should be evaluated to determine

if they are a single instrument or two instruments. If viewed as a single instrument, the combined instrument containing a written put is recognized as a liability (or assets in certain instances) and

measured at fair value. If viewed as two freestanding instruments, the written put option is recognized as a liability pursuant to ASC 480 and the purchased call option is evaluated pursuant to

ASC 815-10 and ASC 815-40 and may be recognized as an asset or equity (refer to discussion in the table above for separate written puts and purchased calls).

11 ASC 480-10-55-55 establishes three scenarios for the written put/purchased call scenario, including one single instrument

(combined written put/purchased call), two instruments (written put and purchased call), and embedded (both options embedded in the noncontrolling interest). However, ASC 480-10-55-59 suggests that the options should be considered embedded. As the Codification was not intended to change current practice, we believe that this contradiction should be resolved in favor of

ASC 480-10-55-55 after considering the legacy guidance in paragraphs 16 through 18 of pre-Codification EITF 00-4.

12 This instrument is not considered mandatorily redeemable, as there is the possibility, while highly unlikely, that on the exercise date the noncontrolling interest has a fair value equal to the strike price in the options and neither party is economically motivated to exercise (as opposed to an embedded forward contract that requires settlement and renders the shares mandatorily

redeemable). Therefore, the guidance in ASC 480-10-30-1 is not applicable. However, see footnote 9, which discusses why that the various initial measurement methods in ASC 480-10 should be approximately the same.




Written put option and purchased call option with

same (or not significantly different) strike

price and same exercise date (continued)


interest (continued)

Other than fixed price

If embedded

The noncontrolling interest with the embedded options is not subject ASC 480-10-55-59 through 55-62. Noncontrolling interest is not

mandatorily redeemable and no liability should be recognized at inception. The options are recognized as part of the noncontrolling interest. Changes in the fair value of options are not recognized.

Earnings are generally attributed to the controlling interest and noncontrolling interest without considering the put option.


is required.


The combined option is reported separately at fair value with

changes in fair value recorded in earnings. The noncontrolling interest is recognized and measured pursuant to ASC 810.


is required for the host equity derivative.

If freestanding

The written put and purchased call should be evaluated to determine

if they are a single instrument or two instruments. If viewed as a single instrument, the combined instrument containing a written put is recognized as a liability (or assets in certain instances) and

measured at fair value. If viewed as two freestanding instruments, the written put option is recognized as a liability pursuant to ASC 480 and the purchased call option is evaluated pursuant to

ASC 815-10 and ASC 815-40 and may be recognized as an asset or equity (refer to discussion in the table above for separate written puts and purchased calls).

Issued subsequent to creation of

noncontrolling interest and issued as

freestanding instruments

Fixed price or other than fixed price

Refer to freestanding analysis above.

2.2.6 Redeemable or convertible equity securities and UPREIT structures

A real estate investment trust (REIT) with an ―umbrella partnership REIT‖ structure (UPREIT) will

typically have a consolidated operating partnership (OP) that has issued ownership units to

noncontrolling parties. Based on the features typically found in the OP units, a REIT should carefully

consider the guidance in ASC 480-10-S99-3A when classifying and measuring noncontrolling OP units in

the consolidated financial statements.

When a REIT acquires a property, it may issue redeemable OP units to the seller (OP units generally are

used to defer a taxable event for the sellers). Those sellers become noncontrolling investors in the OP.

The structure of redemption features as part of the OP units or the unit holder agreement with the

investor can vary based on various legal considerations for the parent REIT and the OP, including the

state of incorporation or organization for the legal entity, interpretations of tax law or other factors.



For example, arrangements vary as to with which entity the investor can redeem the units (e.g., only with

the OP or only with the parent REIT or with the parent REIT deciding which entity will redeem the units).

Typically, the redeeming entity (parent REIT or OP) will have the choice of the redemption consideration,

which could be cash or shares of the parent REIT. The amount of the redemption could be based on a

fixed amount, a formulaic amount, or most frequently, a fixed exchange ratio of OP units for parent REIT

shares (or the then-current value of those public shares in cash).

As the OP units are redeemable (or exchangeable) at the option of the investor, the OP units potentially

represent redeemable noncontrolling interests in the consolidated financial statements. Pursuant to the

redeemable equity guidance in ASC 480-10-S99-3A, if the OP units may be redeemed for cash outside

the control of the reporting entity (the consolidated REIT in this case), the noncontrolling interest should

be classified in the mezzanine section and measured in accordance with the SEC’s guidance. Therefore,

identifying what settlement alternatives exist and whether they are solely within the control of the

reporting entity is important.

Based on discussions with the SEC staff, for the consolidated financial statements, we believe that the

parent REIT and OP can be considered essentially a single decision maker in evaluating the redemption

provisions if both of the following conditions are met:

• The parent REIT is the general partner in the operating partnership and the entities share the same

corporate governance structures.

• The parent REIT can freely exercise all choices afforded it without conflicting with its fiduciary duties

to its shareholders.

This will often result in a conclusion that the parent REIT/OP can elect share settlement upon redemption

of the OP units. However, as discussed in ASC 480-10-S99-3A, the guidance in ASC 815-40-25 should

be evaluated to determine whether the parent REIT/OP controls the actions or events necessary to issue

the maximum number of parent REIT shares that could be required to be delivered under share

settlement of the contract. If the parent REIT/OP controls those actions or events, the OP units would

not be within the scope of the SEC’s guidance. However, if those actions or events are not completely

within their control, the presentation and measurement guidance in ASC 480-10-S99-3A would apply.

There may be separate SEC reporting requirements for the OP. For example, if the OP has public debt

outstanding, many of the concepts described above would be considered in determining the classification

of the OP units in the stand-alone financial statements of the OP. However, it is important to realize that

the OP units would be redeemable equity instruments rather than redeemable noncontrolling interests,

and thus there would be different elements of ASC 480-10-S99-3A to be considered.

2.2.7 Redeemable noncontrolling interest denominated in a foreign currency

When a redeemable noncontrolling interest is denominated in a foreign currency, additional

consideration should be given to the interaction of ASC 830 and ASC 480-10-S99-3A’s measurement

guidance. Because neither ASC 830 nor ASC 480-10-S99-3A provides specific guidance, judgment is

required to determine whether and, if so, how to adjust the carrying amount of the redeemable

noncontrolling interest for the effect of currency exchange rate movements while also respecting the

redeemable equity measurement guidance. See Question 3.6 of our Financial Reporting Developments

publication, Foreign currency matters (SCORE NO. BB2103), for additional guidance.



Insurer’s consolidation of fund partially owned by insurer’s separate accounts on behalf of contract holders

Question 2.1 How should an insurer consolidate a controlled investment fund if a portion of the consolidated

investment fund is owned by the insurer’s separate accounts?

In accordance with ASC 944-80-25-12, the insurer should consolidate the investment fund in the

following manner:

• The portion of the fund assets representing the contract holder’s interests should be included as

separate account assets and liabilities in accordance with ASC 944-80-25-3

• The remaining portion of the fund assets (including the portion owned by any other investors) should

be included in the general account of the insurer on a line-by-line basis

• Noncontrolling interests should not be included in the separate account liability but rather classified

as a liability or equity based on other applicable guidance

It should be noted that pursuant to ASC 944-80-25-3,13 when evaluating an entity for consolidation, an

insurer should not consider any separate account interests held for the benefit of policy holders to be the

insurer’s interests, nor should it combine any separate account interests held for the benefit of policy

holders with the insurer’s general account interest in the same investment.

Refer to our FRD, Consolidation of variable interest entities, for additional consolidation considerations.

13 The guidance applies if the separate account meets the conditions in ASC 944-80-25-2.


3 Attribution of net income or loss and comprehensive income or loss

3.1 Attribution procedure



Attributing Net Income and Comprehensive Income to the Parent and the Noncontrolling Interest

810-10-45-19

Revenues, expenses, gains, losses, net income or loss, and other comprehensive income shall be

reported in the consolidated financial statements at the consolidated amounts, which include the

amounts attributable to the owners of the parent and the noncontrolling interest.

810-10-45-20

Net income or loss and comprehensive income or loss, as described in Topic 220, shall be attributed to

the parent and the noncontrolling interest.

810-10-45-21

Losses attributable to the parent and the noncontrolling interest in a subsidiary may exceed their

interests in the subsidiary’s equity. The excess, and any further losses attributable to the parent and

the noncontrolling interest, shall be attributed to those interests. That is, the noncontrolling interest

shall continue to be attributed its share of losses even if that attribution results in a deficit

noncontrolling interest balance.

While ASC 810-10 requires net income or loss and comprehensive income or loss to be attributed to the

controlling and noncontrolling interests, it does not prescribe a method for making these attributions. We

believe that net income or loss, including other comprehensive income or loss, of a partially-owned

subsidiary should be attributed between controlling and noncontrolling interests based on the terms of a

substantive profit sharing agreement. If a substantive profit sharing agreement does not exist, we

generally believe the relative ownership interests in the subsidiary should be used. Accordingly, in the

latter case, the attribution may be as simple as multiplying the net income or loss and comprehensive

income or loss of the partially-owned subsidiary by the relative ownership interests in the subsidiary.

3.1.1 Substantive profit sharing arrangements

We believe that, if substantive, a contractual arrangement that specifies how net income or loss,

including other comprehensive income or loss, are to be attributed among the subsidiary’s owners should

be used for financial reporting purposes. To be substantive, an arrangement should retain its purported

economic outcome over time, and subsequent events should not have the potential to retroactively

affect or ―unwind‖ attributions of profit or loss from prior periods.



Determining whether a profit sharing arrangement is substantive is a matter of individual facts and

circumstances requiring the use of professional judgment. In particular, care should be exercised when

different formulae are used to allocate cash distributions and liquidating distributions from taxable

earnings. In these situations, the tax allocation should be carefully evaluated to ensure that the basis

used for financial reporting purposes representationally reflects the allocations of earnings agreed by the

parties. ASC 970-323-35-17 provides guidance on this point.

―Specified profit and loss allocation ratios should not be used … if the allocation of cash distributions

and liquidating distributions are determined on some other basis. For example, if … [an] agreement

between two investors purports to allocate all depreciation expense to one investor and to allocate

all other revenues and expenses equally, but further provides that irrespective of such allocations,

distributions to the investors will be made simultaneously and divided equally between them, there is

no substance to the purported allocation of depreciation expense.‖

Additionally, we believe that it would be appropriate to disclose the terms and effects of any material

substantive profit sharing arrangement. Also, the SEC staff has asked public companies to enhance their

disclosures to include how such allocations among controlling and noncontrolling interests are made.

Again, if a substantive profit sharing agreement does not exist, we generally believe the relative

ownership interests in the subsidiary should be used. Accordingly, the attribution may be as simple as

multiplying the net income or loss and comprehensive income or loss of the partially-owned subsidiary by

the relative ownership interests in the subsidiary.

Question 3.1 Can the hypothetical liquidation at book value (HLBV) method14 be used to attribute net income or

loss and comprehensive income or loss between the controlling and noncontrolling interests?

As noted above, all attributions of net income or loss, including other comprehensive income or loss,

should follow a substantive profit sharing agreement (or relative ownership percentage in the absence of

a substantive profit sharing arrangement). When a substantive profit sharing arrangement exists, an

entity will have to develop methodologies that reflect the substantive arrangement to allocate net

income or loss and comprehensive income or loss. The HLBV allocation methodology is one such possible

methodology. However any developed methodology is not necessarily a substantive profit sharing

arrangement. Therefore, use of the HLBV method (or any other methodology) to make such attributions

is only be appropriate if it reflects the terms of an existing substantive profit sharing arrangement.

Determining whether the terms of an arrangement are substantive and whether the HLBV method (or any

other allocation methodology) reflects that substance requires a careful evaluation of the individual facts

and circumstances and requires the use of professional judgment. In evaluating the substance of the

terms, the investor should consider whether the terms retain their purported economic outcome over time

and whether subsequent events have the potential to retroactively affect or ―unwind‖ prior attributions.

14 Under the HLBV method, an investor generally determines its interest in an investee at each balance sheet date by calculating the

amount it would receive (or be obligated to pay) if the investee liquidated all of its assets at book value and distributed the resulting cash to its creditors and investors in accordance with the terms of the governing contractual arrangements. The difference between this amount and the same amount calculated at the end of the previous period represents the investor’s share

of the investee’s net income or losses for that period. In this way, the investor’s share of the investee’s net income or losses reflects its share of the change in the investee’s net asset book value.



3.1.2 Attribution of losses

Before Statement 160 was adopted, losses that otherwise would have been attributed to the

noncontrolling interest were allocated to the controlling interest after the noncontrolling interest was

reduced to zero. If the subsidiary subsequently became profitable, 100% of the net earnings would have

been allocated to the controlling interest until it recovered the losses that were absorbed.

Importantly, Statement 160 amended previous guidance to provide that losses are attributed to the

noncontrolling interest, even when the noncontrolling interest’s basis in the partially-owned subsidiary

has been reduced to zero. Under the economic entity concept, the noncontrolling interest is considered

equity of the consolidated group and participates in the risks and rewards of an investment in the

subsidiary. Therefore, it should be attributed its share of losses just like the parent even if the

noncontrolling interest balance becomes a deficit. Accordingly, any excess loss attributed to the

noncontrolling interest is reported in consolidated financial statements as a deficit balance in the

noncontrolling interest line in the equity section.

3.1.2.1 Distributions in excess of the noncontrolling interest’s carrying amount

We generally believe that because the noncontrolling interest balance can be reduced below zero under

ASC 810 (that is, the noncontrolling interest can have a debit balance), the controlling interest is not

required to recognize a loss when distributions exceed the noncontrolling interest’s carrying value.

Instead, the noncontrolling interest balance is reduced below zero when the transaction is recorded.

Illustration 3-1 illustrates this concept using an example from the real estate industry, where these

transactions may be more common.

Illustration 3-1: Distributions in excess of the noncontrolling interest’s carrying amount

A real estate entity often refinances appreciated property and distributes the proceeds to its owners.

Assume a real estate subsidiary has $100 of equity. The parent and noncontrolling interest own 80%

and 20%, respectively, of the entity. As a result, the balance of noncontrolling interest is $20. The

subsidiary’s only asset is a building with a carrying amount of $100, but with a fair value of $1,100.

Assume the subsidiary refinances the building by mortgaging the building for $1,000, and distributes

the proceeds, proportionately, to its owners.

The journal entries to record these transactions in the consolidated financial statements follow:

Cash $ 1,000

Mortgage liability 1,000

To record the proceeds from the refinancing transaction

Noncontrolling interest $ 200

Cash 200

To record the distribution to the noncontrolling interest

As a result of this transaction, the noncontrolling interest balance would have a debit balance of $180.



3.1.3 Attribution to noncontrolling interests held by preferred shareholders

When a consolidated subsidiary is funded with a combination of common and preferred stock, care

should be taken when attributing net income or loss and comprehensive income or loss between the

controlling and noncontrolling interests.

Unlike common stock, preferred stock is typically entitled to a liquidation preference, which generally will

include a par amount and, in some cases, cumulative unpaid dividends. Preferred stock typically is entitled

to a share of the subsidiary’s earnings up to the stated dividend, and losses of the subsidiary typically do

not reduce the amount due to the preferred stockholders in liquidation (although economically a portion of

those losses may be funded by the preferred stock). For these reasons, preferred stock normally does not

represent a residual equity interest in the subsidiary even though preferred stock is classified as a

noncontrolling interest in the consolidated financial statements of Parent.

We believe that a noncontrolling interest in a subsidiary that consists of preferred stock should be

accounted for similar to preferred stock issued by the parent. Accordingly, any net income and

comprehensive income of the subsidiary are allocated to the noncontrolling interest based on the

preferred stock’s stated dividend and liquidation rights, and any net losses and comprehensive losses of

the subsidiary normally are not allocated to preferred stock. In other words, the balance of the preferred

stock classified as noncontrolling interest generally should be equal to its liquidation preference.

In some cases, the preferred stock does not have a liquidation preference and truly represents a residual

equity interest in the entity (e.g., the equity interest may be called preferred stock because it participates

disproportionally in returns but otherwise participates pari passu in losses). In these instances, the interest

is tantamount to common stock. Therefore, in these circumstances, we believe it would be appropriate

for a parent to charge net losses and comprehensive losses against the preferred stock noncontrolling

interest, as it would the common interest.

The guidance above only relates to preferred stock and should not necessarily be analogized to residual

equity interests that provide preferential returns, which are common in partnerships.

3.1.4 Attribution of goodwill impairment

ASC 350-20-35-57A states that if a reporting unit is less than wholly-owned, the fair value of the

reporting unit and the implied fair value of its goodwill shall be determined in the same manner as it

would be determined in a business combination pursuant to ASC 805. Any goodwill impairment that

results from applying step two of the goodwill impairment model should be attributed to the controlling

and noncontrolling interests on a rational basis.

While the allocation of net income or loss and comprehensive income or loss to the controlling and

noncontrolling interests may be as straightforward as multiplying earnings by the relative ownership

percentages (when a substantive profit sharing arrangement does not exist), that approach will not be

appropriate for allocating any goodwill impairment. Particular care must be taken in this instance

because a premium is often paid to obtain control of an entity. And, as a result, the controlling and

noncontrolling interests’ bases in acquired goodwill will not be proportional to ownership interests

because the control premium is allocated only to the controlling interest.

Chapter 3 of our FRD, Intangibles — Goodwill and other, provides further guidance on goodwill

impairment testing when a noncontrolling interest exists.



3.1.5 Attributions related to business combinations effected before Statement 160 and Statement 141(R) were adopted

Statement 160 was effective for the first annual reporting period beginning on or after 15 December

2008 (that is, 1 January 2009, for calendar year-end companies) and was required to be adopted

concurrently with Statement 141(R). Statement 141(R) was to be adopted prospectively.

Business combinations achieved in stages prior to the adoption of Statement 141(R) (e.g., business

combinations accounted for pursuant to Statement 141) generally followed step acquisition accounting

(that is, the noncontrolling interest was not initially measured at fair value). It is therefore inappropriate

to determine the noncontrolling interest’s basis in the assets and liabilities using its relative ownership in

the subsidiary for the purposes of attributing net income or loss between controlling and noncontrolling

interests when accounting for acquisitions effected prior to the adoption of Statement 141(R). Given the

prohibition on retroactively applying Statement 141(R), the controlling and noncontrolling interests’

bases in assets and liabilities recognized prior to the adoption of Statement 141(R) should continue to be

respected.

Illustration 3-2: Attributions related to an acquisition prior to Statement 141(R)

Assume that Acquirer acquired a 60%-controlling interest in Target on 1 January 2005, and the

business combination was accounted for pursuant to Statement 141. Target had, on the acquisition

date, a definite-lived intangible asset with a $100 fair value, but no book value. Pursuant to Statement

141, Acquirer would have measured the intangible asset in its financial statements at $60 (60%

acquired plus carryover basis for the noncontrolling interest’s ownership in the intangible asset, that

is, zero).

Assume at the acquisition date the intangible asset had a 10-year remaining useful life. Accordingly,

Acquirer would have recognized annual amortization expense of $6 in its consolidated financial

statements. Because the noncontrolling interest has no basis in the intangible asset, no amortization

expense is allocated to the noncontrolling interest.

This concept extends to the attribution of impairment charges between the controlling and

noncontrolling interests. Because the noncontrolling interest does not have a basis in the intangible

asset, if the intangible asset becomes impaired after the acquisition date, the entire impairment

charge would be allocated to the controlling interest. Further, as described in ASC 350-20-35-57A, if a

reporting unit includes goodwill that is attributable only to a parent’s basis in a partially-owned subsidiary

for which acquisition accounting was completed pursuant to Statement 141, any goodwill impairment

charge (whether recognized before or after the effective date of Statement 160) would be attributed

entirely to the parent.

3.1.6 Effect on effective income tax rate

In certain instances, an entity’s reported effective tax rate may be affected by the attribution of net

income and losses and comprehensive income and losses to noncontrolling interests. This is particularly

true for entities that consolidate subsidiaries that pay no income tax, but instead distribute any taxable

income to their respective investors, such as limited liability companies and limited partnerships. In

certain cases, the effective tax rate computed from the amounts included on the income statement may

be significantly affected, requiring additional disclosure in the notes to the financial statements.



Illustration 3-3 demonstrates the potential effect of attributions on an entity’s effective tax rate.

Illustration 3-3: Effect of attributions on an entity’s effective tax rate

Assume Entity A (a corporation) owns 60% of LP (a limited partnership) and consolidates LP. Further

assume that Entity A’s statutory income tax rate and stand-alone effective tax rate are both 35%,

while LP pays no income tax because it distributes its taxable earnings to its investors. Each entity has

the following standalone financial information.

Entity A LP

Income before income taxes $ 1,000 $ 900

Income taxes 350 —

Net income $ 650 $ 900

Entity A is required to pay income taxes on its portion of LP’s earnings. Therefore, the income tax

expense related to LP in Entity A’s consolidated financial statements would be $189 ($900 x 60%

interest x 35% tax rate).

The consolidated financial information for Entity A would be presented as follows.

Entity A - Consolidated

Income before income taxes ($1000+$900) $ 1,900

Income taxes ($350+$189) 539

Net income 1,361

Net income attributable to noncontrolling interest ($900 x 40%) 360

Net income attributable to controlling interest $ 1,001

Based on the amounts from the consolidated financial information, Entity A’s consolidated effective

tax rate would be 28.4% ($539 / $1,900). This difference from 35% occurs because income before

income taxes includes earnings allocable to the noncontrolling interest for which there is no tax

expense provided.

We believe that this is required to be explained in the effective income tax rate reconciliation disclosed

in the footnotes to the consolidated financial statements pursuant to ASC 740. An example effective

income tax rate reconciliation for Entity A follows:

Effective income tax rate reconciliation

Statutory income tax rate 35.0%

Book income of consolidated partnership attributable to noncontrolling interest (6.6)

Effective tax rate for controlling interest 28.4%


4 Changes in a parent’s ownership interest in a subsidiary while control is retained

4.1 Increases and decreases in a parent’s ownership of a subsidiary



Changes in a Parent’s Ownership Interest in a Subsidiary

810-10-45-21A

The guidance in paragraphs 810-10-45-22 through 45-24 applies to the following:

a. Transactions that result in an increase in ownership of a subsidiary

b. Transactions that result in a decrease in ownership of either of the following while the parent

retains a controlling financial interest in the subsidiary:

1. A subsidiary that is a business or a nonprofit activity, except for either of the following:

i. A sale of in substance real estate (for guidance on a sale of in substance real estate, see

Subtopic 360-20 or 976-605)

ii. A conveyance of oil and gas mineral rights (for guidance on conveyances of oil and gas

mineral rights and related transactions, see Subtopic 932-360).

2. A subsidiary that is not a business or a nonprofit activity if the substance of the transaction

is not addressed directly by guidance in other Topics that include, but are not limited to, all

of the following:

i. Topic 605 on revenue recognition

ii. Topic 845 on exchanges of nonmonetary assets

iii. Topic 860 on transferring and servicing financial assets

iv. Topic 932 on conveyances of mineral rights and related transactions

v. Topic 360 or 976 on sales of in substance real estate.

810-10-45-22

A parent’s ownership interest in a subsidiary might change while the parent retains its controlling

financial interest in the subsidiary. For example, a parent’s ownership interest in a subsidiary might

change if any of the following occur:

a. The parent purchases additional ownership interests in its subsidiary.

b. The parent sells some of its ownership interests in its subsidiary.

c. The subsidiary reacquires some of its ownership interests.

d. The subsidiary issues additional ownership interests.



810-10-45-23

Changes in a parent’s ownership interest while the parent retains its controlling financial interest in its

subsidiary shall be accounted for as equity transactions (investments by owners and distributions to

owners acting in their capacity as owners). Therefore, no gain or loss shall be recognized in

consolidated net income or comprehensive income. The carrying amount of the noncontrolling interest

shall be adjusted to reflect the change in its ownership interest in the subsidiary. Any difference

between the fair value of the consideration received or paid and the amount by which the

noncontrolling interest is adjusted shall be recognized in equity attributable to the parent. Example 1

(paragraph 810-10-55-4B) illustrates the application of this guidance.

810-10-45-24

A change in a parent’s ownership interest might occur in a subsidiary that has accumulated other

comprehensive income. If that is the case, the carrying amount of accumulated other comprehensive

income shall be adjusted to reflect the change in the ownership interest in the subsidiary through a

corresponding charge or credit to equity attributable to the parent. Example 1, Case C (paragraph

810-10-55-4F) illustrates the application of this guidance.

ASC 810 requires that transactions that result in an increase in ownership of a subsidiary be accounted

for as equity transactions. That is, no purchase accounting adjustments are made. ASC 810 further

requires that transactions that result in a decrease in ownership interest while the parent retains its

controlling financial interest be accounted for as equity transactions. ASC 810-10-45-21A(b) clarifies

that the guidance related to decreases in a parent’s ownership interest applies to interests in:

A subsidiary that is a nonprofit activity15 or a business, except for either a sale of in-substance real

estate or a conveyance of oil and gas mineral rights

A subsidiary that is not a business or a nonprofit activity but the substance of the transaction is not

addressed directly by guidance in other ASC Topics

Neither gains nor losses on these transactions are recognized in net income, and the carrying values of

the subsidiary’s assets (including goodwill) and liabilities should not be changed.

The remainder of this chapter focuses on the accounting for increases in a parent’s ownership interest in

a subsidiary and decreases in ownership that do not result in a loss of control. For a discussion of the

accounting for decreases in ownership that result in a loss of control of a subsidiary or a group of assets

that constitute a business, see Chapter 6¸ Loss of control over a subsidiary or a group of assets.

4.1.1 Increases in a parent’s ownership interest in a subsidiary

A parent may increase its ownership interest in a subsidiary by:

• Directly purchasing additional outstanding shares of the subsidiary

• Causing the subsidiary to reacquire a portion of its outstanding shares (a treasury stock buy-back)

• Causing the subsidiary to issue additional shares to the parent

15 ASC 810-10-20 defines a nonprofit activity as ―(a)n integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing benefits, other than goods or services at a profit or profit equivalent, as a fulfillment of an

entity’s purpose or mission (for example, goods or services to beneficiaries, customers, or members). As with a not-for-profit entity, a nonprofit activity possesses characteristics that distinguish it from a business or a for-profit business entity.‖



Under ASC 810 accounting for an increase in ownership of a subsidiary is generally similar to accounting

for a decrease in ownership interest without a loss of control. That is, the carrying amount of the

noncontrolling interest is adjusted (decreased in this case) to reflect the controlling interest’s increased

ownership interest in the subsidiary’s net assets. Any difference between the consideration paid by the

parent to a noncontrolling interest holder (or contributed by the parent to the net assets of the

subsidiary) and the adjustment to the carrying amount of the noncontrolling interest in the subsidiary is

recognized directly in equity attributable to the controlling interest (that is, additional paid-in capital).

Illustration 4-1:

To illustrate this concept, assume Parent owns an 80% interest in Subsidiary, which has net assets of

$4,000. The carrying amount of the noncontrolling interest’s 20% interest in Subsidiary is $800.

Parent acquires an additional 10% interest in Subsidiary from the noncontrolling interest for $500,

increasing its controlling interest to 90%. Under ASC 810, Parent would account for its increased

ownership interest in Subsidiary as a capital transaction as follows:

Stockholders’ equity — noncontrolling interest $ 400

Additional paid-in capital 100

Cash $ 500

4.1.1.1 Increases in a parent’s ownership interest in a consolidated VIE

We believe the primary beneficiary’s subsequent acquisition of a noncontrolling interest in an existing

consolidated variable interest entity (VIE) should be treated as an equity transaction, consistent with the

principles of ASC 810-10-45-23. Thus, any difference between the price paid and the carrying amount of

the noncontrolling interest should not be reflected in net income, but instead reflected directly in equity.

See Section 4.1.1 for further discussion of this accounting.

4.1.2 Decreases in a parent’s ownership interest in a subsidiary without loss of control

A parent may decrease its ownership interest in a subsidiary by (1) selling a portion of the subsidiary’s

shares it holds or (2) causing the subsidiary to issue shares. In accounting for such transactions under

ASC 810, assuming they meet the scope of ASC 810-10-45-21A(b), the carrying amount of the

noncontrolling interest should be increased to reflect the change in the noncontrolling interest’s

ownership in the subsidiary’s net assets (that is, the amount attributed to the additional noncontrolling

interests should reflect its proportionate ownership percentage in the subsidiary’s net assets acquired).

Any difference between the consideration received (whether by the parent or the subsidiary) and the

adjustment made to the carrying amount of the noncontrolling interest should be recognized directly in

equity attributable to the controlling interest (that is, as an adjustment to additional paid-in capital).



Illustration 4-2: Decrease in a parent’s ownership throughparent selling shares

Assume Subsidiary A, a widget manufacturer, has 10,000 shares of common stock outstanding, all of

which are owned by its parent, ABC Co. The carrying amount of Subsidiary A’s equity is $200,000.

ABC Co. sells 2,000 of its shares in Subsidiary A to an unrelated entity for $50,000 of cash, reducing

its ownership interest from 100% to 80%.

Under ASC 810, a noncontrolling interest of $40,000 is recognized ($200,000 x 20%). The $10,000

excess of the cash received ($50,000) over the adjustment to the carrying amount of the

noncontrolling interest ($40,000) is recognized as an increase in additional paid-in capital attributable

to ABC Co. as follows:

Cash $ 50,000

Additional paid-in capital $ 10,000

Stockholders’ equity — noncontrolling interest 40,000

Illustration 4-3: Decrease in a parent’s ownership through a subsidiary issuing new shares

Assume Subsidiary A, a widget manufacturer, has 10,000 shares of common stock outstanding. ABC

Co. (the parent) owns 9,000 of the outstanding shares and other shareholders own the remaining

1,000 shares. The carrying amount of Subsidiary A’s equity is $300,000, with $270,000 attributable

to ABC Co. (the parent) and $30,000 attributable to the noncontrolling interest holders.

Assume Subsidiary A sells 2,000 previously unissued shares to an unrelated entity for $120,000 cash,

increasing the carrying amount of Subsidiary A’s equity to $420,000 ($300,000 + $120,000).

The transaction would reduce ABC Co.’s ownership interest from 90% to 75% (9,000/12,000).

However, the transaction would increase ABC Co.’s Investment in Subsidiary A to $315,000 (75% of

$420,000), an increase of $45,000 ($315,000 - $270,000). Therefore, the entry recorded by ABC

Co. would be:

Investment in Subsidiary A $ 45,000


In addition, the carrying amount of the noncontrolling interest would increase to $105,000 (25% of

$420,000). This increase of $75,000 ($105,000 - $30,000) would be recorded by Subsidiary A as:

Cash $ 120,000


Stockholders’ equity — noncontrolling interest 75,000

In consolidation, the increase to Investment in Subsidiary A recorded on ABC Co.’s balance sheet

would eliminate against the increase in additional paid-in capital recorded on Subsidiary A’s balance

sheet. Refer to Chapter 5, Intercompany eliminations, for further discussion of elimination entries.



Question 4.1 For business combinations effected before Statement 160 and Statement 141(R) were adopted, how

should companies account for subsequent acquisitions or dispositions of the noncontrolling interest

by the parent while it maintains its controlling financial interest?

We believe that all subsequent acquisitions or dispositions of ownership interests in subsidiaries meeting

the scope of ASC 810-10-45-21A while the parent maintains control — including those related to

business combinations effected prior to the adoption of Statement 160 — should be accounted for

pursuant to Statement 160’s provisions.

Pursuant to ASC 805, as amended by Statement No. 141(R), assets and liabilities that arose from

business combinations whose acquisition dates preceded Statement 141(R)’s effective date are not to

be adjusted upon application of Statement 141(R). Accordingly, acquisitions of the noncontrolling

interest by the parent while it maintains its controlling financial interest should not be accounted for

as step acquisitions. Similarly, a parent’s sales of its ownership interests in a subsidiary meeting the

scope of ASC 810-10-45-21A over which it continues to maintain control should be accounted for as

equity transactions.

4.1.2.1 Accounting for a stock option of subsidiary stock

A subsidiary may grant a share-based payment award of its own stock to its employees that would result

in a decrease in ownership and a noncontrolling interest when exercised. Questions arise as to whether

these awards should be classified in the consolidated financial statements as a noncontrolling interest or

as additional paid-in capital prior to exercise.

Awards of this nature may arise in a business combination when the acquirer is not obligated to replace

acquiree’s awards and the awards remain in existence after the transaction. The accounting for these

awards is addressed in Section 6.3 of our FRD, Business combinations. We believe this accounting would

also apply to awards of subsidiary stock that do not arise in a business combination.

4.1.2.2 Scope exception for in-substance real estate transactions

The decrease in ownership guidance in ASC 810-10 does not apply if a transaction is a sale of in-

substance real estate, even if that real estate is considered a business. Entities should apply the sale of

real estate guidance in ASC 360-20 and ASC 976-605 to such transactions. However, guidance on

noncontrolling interests in consolidated financial statements within ASC 810-10 will continue to apply to

increases in ownership of an entity that is in-substance real estate.

4.1.2.3 Scope exception for oil and gas conveyances

Any conveyance of an oil and gas mineral right that is accounted for under the guidance in ASC 932-360-

40 is outside the scope of ASC 810’s derecognition provisions as well as ASC 810’s provisions regarding

decrease in ownership in circumstances in which a controlling interest is retained. Therefore, if a

company is conveying a mineral interest, the transaction would be accounted for under ASC 932.

However, in a transaction in which a company sells all or a portion of a subsidiary or a group of assets

that include oil and gas mineral rights (or contributes it to another entity), such transaction may be more

appropriately accounted for under the guidance in ASC 810. Consideration of the illustrations and

guidance in ASC 932 is required to determine whether a transaction represents a conveyance of a

mineral property. If a transaction does not fall within the guidance of ASC 932, it should be accounted

for under ASC 810.



The following example illustrates a transaction that is not in the scope of ASC 810:

Illustration 4-4

Facts

O&G Co. A owns a 100% gas mineral interest in a property in Colorado. O&G Co. A assigns an

operating interest to Drilling Co. A and retains a non-operating interest in the property. The

transaction requires Drilling Co. A to drill, develop and operate the property. O&G Co. A will participate

in the production profits after Drilling Co. A recoups its costs.

Analysis

The accounting for the transaction described above (a pooling of assets in a joint undertaking) is

addressed in ASC 932-360-55-3. Therefore, the transaction should be accounted for in accordance

with ASC 932, not ASC 810.

The following example illustrates a transaction that is in the scope of ASC 810:

Illustration 4-5

Facts

O&G Co. A owns an operating subsidiary, Foreign Sub X. Foreign Sub X has oil and gas mineral

properties as well as other energy related operations. Subsequently, O&G Co. A sells a 55% interest in

those operations to O&G Co. B and loses control.

Analysis

In this fact pattern, O&G Co. A is selling 55% of its equity in Foreign Sub X, which results in the loss of

control.16 Because this transaction does not represent an oil or gas mineral property conveyance as

contemplated in the guidance of ASC 932 or any of ASC 932’s implementation guidance illustrations,

it should be accounted for under the derecognition guidance in ASC 810.

We believe, in this circumstance, ASC 810 is the most appropriate guidance because this transaction

represents the sale of a business that happens to include oil and gas mineral properties. This type of

transaction is not addressed in the mineral property conveyance guidance in ASC 932.

4.1.2.4 Decreases in ownership of a subsidiary that is not a business or nonprofit activity

If a decrease in ownership occurs in a subsidiary that is not a business or nonprofit activity, an entity first

needs to evaluate the substance of the transaction and identify whether other applicable literature

(e.g., transfers of financial assets as discussed in ASC 860, revenue recognition as discussed in ASC 605,

etc.) may provide relevant guidance. If no such guidance exists, an entity should apply the guidance in

ASC 810-10. For example, if an enterprise sells the equity securities of a subsidiary that is not a business

and all of the assets in the subsidiary are financial assets, the substance of the transaction should be

evaluated under ASC 860.

However, guidance on noncontrolling interests in consolidated financial statements within ASC 810-10

will continue to apply to increases in ownership of an entity that is not a business or nonprofit activity.

16 A transaction with the same fact pattern, but in which there is a decrease in ownership without loss of control (for example, a sale of 20% of the equity), would result in the same conclusion (that is, the transaction is in the scope of ASC 810).



4.1.2.5 Issuance of preferred stock by a subsidiary

Pursuant to ASC 810-10-45-23, changes in a parent’s ownership interest while the parent retains control

of a subsidiary should be accounted for as equity transactions. We generally believe that the preferred

stock issuance by a subsidiary to noncontrolling interest holders should be reflected as noncontrolling

interest in the financial statements of the parent at the amount of the cash proceeds received (e.g., the

par amount).

Unlike common stock, preferred stock of a subsidiary often does not represent a residual equity interest.

Oftentimes, the holders of preferred stock are entitled to a liquidation preference, which generally

includes a par amount and, in some cases, cumulative unpaid dividends. Additionally, the preferred stock

holders of a subsidiary typically are entitled to a share of the subsidiary’s earnings up to the stated

dividend. Unlike an issuance of common stock by a subsidiary (which generally results in a change in the

parent’s ownership interest), the issuance of preferred stock by a subsidiary does not change the parent’s

ownership interest. When recording the issuance of preferred stock by a subsidiary that is not a residual

interest, we would not expect to see an adjustment to the parent’s equity accounts. (See Section 3.1.3 for

interpretive guidance on attributions to noncontrolling interests held by preferred shareholders).

4.1.2.6 Decreases in ownership through issuance of partnership units that have varying profit or

liquidation preferences

Pursuant to ASC 810-10-45-23, changes in a parent’s ownership interest while the parent retains control

of a subsidiary (e.g., partnership) should be accounted for as equity transactions.

Partnerships can take various forms. Frequently, there is a substantive profit sharing arrangement

whereby the profits of the partnership are allocated to the partners based on a predetermined formula.

In some cases, the profit sharing arrangement may provide certain partners with preferences in profits

from operations or in liquidation. In other cases, the substantive profit sharing arrangement may not

provide for preferences in profits or in liquidation.

To the extent it is determined that the issuance of partnership units represents the issuance of

preferential units (e.g., such units have preference in operating or liquidating cash flows), we believe that

the guidance on the issuance of preferred stock by a subsidiary should be followed (see Section 4.1.2.5).

That is, when recording the issuance of preferential units by a partnership subsidiary, there is generally

no adjustment to the parent’s equity accounts. Alternatively, if partnership units are issued without

preferences, we believe that a parent of a partnership would follow the guidance in ASC 810-10-45-23.

See Question 4-2 for discussion of the accounting upon expiration of a preference period.

We would expect a parent of a partnership to develop a reasonable policy with respect to this accounting

and apply that policy consistently.

Question 4.2 How should the provisions of ASC 810-10 be applied to a consolidated Master Limited Partnership’s

issuance of preferential limited partnership units?

A Master Limited Partnership (MLP) is a limited partnership whose units are available to investors and

traded on public exchanges, just like corporate stock. MLPs usually involve (1) a general partner (GP),

who typically holds a small percentage (commonly 2%) of the outstanding partnership units and manages

the operations of the partnership, and (2) limited partners (LPs), who provide capital and hold most of

the ownership but have limited influence over the operations. Enterprises that form MLPs typically do so

to take advantage of the special tax treatment of the partnership structure (although MLPs may also

provide an attractive exit strategy for owners of private equity assets). To qualify for the tax benefits,

90% of an MLPs’ income must be derived from activities in natural resources, real estate or commodities.

As a result, the energy industry has experienced a dramatic rise in the use of the MLP structure.



The GP frequently consolidates the MLP. For the issuance of LP interests, all sales first should be

evaluated to determine if they represent in-substance sales or partial sales of real estate under ASC 360-

20-15-2 through 15-10 (refer to our FRD, Real estate sales, for further interpretive guidance). Assuming

the sale is not in-substance a sale or partial sale of real estate, a consolidated subsidiary that issues

shares while the parent maintains control of the subsidiary should be accounted for as a capital

transaction pursuant to the decrease in ownership guidance.

However, the decrease in ownership guidance may not apply when an MLP issues limited partnership units

that have a preference in distributions or liquidation rights (referred to as the common LP units). It is

common for an MLP partnership agreement to provide that, during a subordination period, the common LP

units will have the right to receive distributions of available cash each quarter based on a minimum

quarterly distribution, plus any arrearages, before any distributions of available cash may be made on the

subordinated LP units. Furthermore, no arrearages will be paid on the subordinated units. The practical

effect of the subordinated LP units is to increase the likelihood that during the subordination period there

will be available cash to be distributed on the common LP units. When subordinated LP units are held by the

parent/GP of an MLP, common LP units do not possess the characteristics of a residual equity interest

given the common LP units’ preference over the subordinated LP units. As such, we believe that the

accounting guidance related to changes in a parent’s ownership interest in a subsidiary would not apply.

Therefore, if the parent/GP owns subordinated LP units in the MLP, the parent/GP should reflect the

proceeds from issuance of common LP units as noncontrolling interest in its financial statements with no

adjustment to additional paid-in capital. We believe that if the class of security issued by the subsidiary has

a preference in distribution or liquidation rights over any other class of equity security, then it is analogous

to preferred stock. As such, we do not believe the guidance above would apply to such transactions. See

4.1.2.4 above for additional discussion.

MLP partnership agreements include provisions for the subordination period to expire after a specific

period of time if the minimum quarterly distributions have been made to the holders of the common LP

units. Upon the expiration of the subordination period, all subordinated LP units held by the parent/GP

have the same distribution and liquidation rights as the other common LP units. Although the common

LP units previously issued by the MLP to the holders of the noncontrolling interest no longer have a

preference in distributions due to the expiration of the subordination period, we believe this loss of

preference has no immediate accounting consequences. The accounting for changes in noncontrolling

interests only applies to changes in a parent’s ownership interest in a subsidiary, which includes

circumstances in which, ―(a) the parent purchases additional ownership interests in its subsidiary, (b) the

parent sells some of its ownership interests in its subsidiary, (c) the subsidiary reacquires some of its

ownership interests, or (d) the subsidiary issues additional ownership interests‖ (ASC 810-10-45-22). We

believe the expiration of the subordination period is not a change in the parent’s ownership interest in a

subsidiary because the expiration does not result in a change in ownership interest in the MLP. As such,

there is no adjustment to be recognized to the equity accounts of the parent (that is, no adjustment to

additional paid-in capital) or noncontrolling interest as a result of the expiration of the preferences.

4.1.3 Accumulated other comprehensive income considerations

When a change in a parent’s ownership interest that does not result in the loss of control occurs in a

subsidiary meeting the scope of ASC 810-10-45-21A that has a balance of accumulated other

comprehensive income (AOCI), the AOCI balance is adjusted to reflect a change in the parent’s

proportionate interest in that AOCI balance by an adjustment to the parent’s consolidated additional

paid-in-capital.



Illustration 4-6

For example, assume Parent owns an 80% interest in Subsidiary, a retailer of children’s toys, which has

net assets of $4,000. The carrying amount of the noncontrolling shareholders’ 20% interest in

Subsidiary is $800, which includes $200 that represents the noncontrolling interest’s share of $1,000

of AOCI credits. Parent acquires an additional 10% interest from a third party in Subsidiary for $500,

increasing its controlling ownership interest to 90%.

As a result of this purchase, Parent’s interest in Subsidiary’s AOCI balance increases by $100 ($1,000

x 10%). Under ASC 810, Parent will account for its increased ownership interest in Subsidiary as

follows:



Cash $ 500

AOCI 100

If a decrease in a parent’s controlling ownership interest that does not result in a loss of control occurs in

a subsidiary meeting the scope of ASC 810-10-45-21A(b) and that has AOCI, the accounting under

ASC 810 is similar to that described in the example above. That is, a proportionate share of AOCI is

attributed to the noncontrolling interest.

Illustration 4-7

For example, assume Parent owns 100% of Subsidiary, which has net assets of $4,000, including

$1,000 of AOCI. Assume Subsidiary is a business and is in the scope of ASC 810-10-45-21A(b).

Parent sells a 10% interest in Subsidiary for $500, decreasing its interest to 90%. As a result of the

sale, Parent’s interest in Subsidiary’s AOCI balance decreases by $100 ($1,000 x 10%). Under

ASC 810, Parent will account for the change in its ownership interest in Subsidiary as follows:

Cash $ 500

AOCI 100



4.1.4 Accounting for foreign currency translation adjustments upon a change in parent’s ownership interest without loss of control

The recognition of accumulated foreign currency translation adjustments as gains or losses on sales of

foreign entity shares is precluded unless accompanied by a loss of control. This provision aligns the

accumulated foreign currency translation recognition requirements with the general principles in

ASC 810 pertaining to recognition of other comprehensive income items, as discussed in this section.

See Section 6.1 for a summary of recent discussions of the EITF regarding a parent’s accounting for

accumulated foreign currency translation adjustments when accompanied by a loss of control.

4.1.5 Allocating goodwill upon change in parent’s ownership interest

Although the total goodwill balance is not adjusted upon a change in parent’s ownership interest, for the

purposes of testing for impairment, goodwill should be reallocated between the controlling and

noncontrolling interests based on the changes in ownership interests.



Illustration 4-8

To illustrate this concept, assume Parent initially acquires 80% of Subsidiary. The business

combination is accounted for under ASC 805 and $100 of goodwill is recognized ($80 attributable to

Parent and $20 attributable to the noncontrolling interest, assuming no control premium). If Parent

acquires an additional 10% interest in Subsidiary, the consolidated amount of goodwill does not

change, but the goodwill balance is reallocated between Parent and the noncontrolling interest based

on the revised percentage ownership interest (that is, $90 would be attributable to Parent and $10

would be attributable to the noncontrolling interest).

4.1.6 Accounting for transaction costs incurred in connection with changes in ownership

ASC 810 provides that gains or losses should not be recognized upon changes in a parent’s ownership of

a subsidiary meeting the scope of ASC 810-10-45-21A while control is retained because the entities are

considered one economic entity. Accordingly, we believe that these transactions are analogous to

treasury stock transactions.

Based on this, we believe that specific, direct and incremental costs (but not management salaries or

other general and administrative expenses) related to changes in a parent’s ownership percentage while

control is maintained may be accounted for as part of the equity transaction. However, the provisions of

ASC 810-10-40-6, which address multiple arrangements that are to be considered as a single

transaction, should be considered.

We observe that some believe that transaction costs incurred in connection with changes in ownership of

consolidated subsidiaries meeting the scope of ASC 810-10-45-21A while control is retained are not

analogous to treasury stock transactions and, therefore, should be expensed as incurred.

We believe that until further guidance is issued, a reporting enterprise should adopt and consistently

apply an accounting policy for these costs.

4.1.7 Chart summarizing accounting for changes in ownership

The following chart summarizes ASC 810-10’s accounting in the consolidated financial statements

for changes in a parent’s ownership interest in a subsidiary (within the scope of ASC 810-10-45-21A)

while maintaining a controlling financial interest:

Parent acquires additional ownership interest Parent sells a portion of its ownership interest

Reduce noncontrolling interest based on proportion acquired. APIC adjusted for difference between the amount by which noncontrolling interest is reduced and the amount of consideration paid. Adjust accumulated other comprehensive income with corresponding adjustment to APIC, as appropriate.

Increase noncontrolling interest for proportion of parent’s ownership interest it sold. APIC adjusted for difference between the amount by which noncontrolling interest is increased and the amount of consideration received. Adjust accumulated other comprehensive income with corresponding adjustment to APIC, as appropriate.

Subsidiary acquires noncontrolling interest Subsidiary issues shares to noncontrolling interest

Reduce noncontrolling interest based on proportion acquired. APIC adjusted for difference between the amount by which noncontrolling interest is reduced and consideration paid. Adjust accumulated other comprehensive income with corresponding adjustment to APIC, as appropriate.

Calculate shares effectively sold by parent. Increase noncontrolling interest for proportion of parent’s ownership interest it effectively sold. Difference between consideration received and book value of parent’s shares reflected in APIC. Adjust accumulated other comprehensive income with corresponding adjustment to APIC, as appropriate.



4.2 Comprehensive example

The following example illustrates the accounting in consolidation for changes in a parent’s ownership

interest while the parent maintains control of the subsidiary meeting the scope of ASC 810-10-45-21A.

Work paper adjusting entries are numbered sequentially.

Illustration 4-9

Assume on 1 January 20X1, Company P — which is newly formed — raises $45,000 of capital.

Company P issues 1,500 shares of $1 par stock for $36,000 and raises $9,000 by issuing debt.

Company P acquires, for $45,000, 70% of the common stock of Company S, a distributor of video

games qualifying as a business pursuant to ASC 805, as amended by Statement No. 141(R). Company

S’s fair value is $64,286. Company S’s acquisition-date balance sheet is presented in Figure 4-1.

Income taxes have been ignored. This example uses simplifying assumptions. For example, it would

be unusual for no identifiable intangible assets to be recognized as part of the business combination

(and for all the excess purchase price to be allocated to goodwill). Additionally, this example also

assumes there is no control premium.

Figure 4-1: Acquisition-date balance sheet for Company S at 1 January 20X1 (all amounts in dollars)

Book value Fair Value

Cash 3,000 3,000

Marketable securities (available-for-sale) 12,000 12,000

Inventory 30,000 34,500

Buildings and equipment, net 60,000 85,500

105,000 135,000

Accounts payable 75,000 75,000

Common stock 25,000

Accumulated other comprehensive income 5,000

105,000

For illustrative purposes, Company S’s income statement has been made constant for each year of this

example and is presented in Figure 4-2.

Figure 4-2: Income statement for Company S for each year (all amounts in dollars)

Revenues 96,000

Cost of revenues 42,000

Gross profit 54,000

Selling and administrative (including 6,000 of depreciation) 24,000

Net income 30,000

4.2.1 Consolidation at the acquisition date

ASC 805 generally requires the acquirer to measure the identifiable assets acquired, the liabilities

assumed and noncontrolling interest in the acquiree at their acquisition-date fair values if the acquiree

meets ASC 805’s business definition. (Except for the requirement to recognize goodwill, ASC 805’s

provisions are also generally followed for consolidated variable interest entities, as that term is identified

by ASC 810-10’s variable interest model).



Illustration 4-10

The consolidation procedures illustrated in this example reflect the revaluation of the subsidiary’s

assets and liabilities through the adjustments column of a consolidating work paper. The subsidiary’s

assets and liabilities have not been revalued directly on the subsidiary’s financial statements. That is,

while push-down accounting may be required pursuant to other literature in certain situations, it is not

illustrated here, but is presented in Appendix A.

Figure 4-3: Acquisition-date consolidating work paper to arrive at consolidated balance sheet, 1

January 20X1 (all amounts in dollars)

Company P

Company S

Adjustments

Consolidated Debit Credit

Cash — 3,000 3,000

Marketable securities — 12,000 12,000

Inventory — 30,000 (1) 4,500 34,500

Buildings and equipment, net — 60,000 (2) 25,500 85,500

Investment in Company S 45,000 — (3) 45,000 —

Goodwill — — (4) 4,286 4,286

Total assets 45,000 105,000 139,286

Accounts payable — 75,000 75,000

Debt 9,000 — 9,000

Total liabilities 9,000 75,000 84,000

Common stock 1,500 30,000 (5) 30,000 1,500

Additional paid-in capital 34,500 — 34,500

Retained earnings — — —

Total parent shareholders’ equity 36,000 30,000 36,000

Noncontrolling interest — — (6) 19,286 19,286

Total equity 36,000 30,000 55,286

Total liabilities and equity 45,000 105,000 139,286

Figure 4-3 illustrates the elimination of Company P’s investment in Company S and allocation of the

purchase price ($45,000) to the acquired assets, liabilities and noncontrolling interest, as follows:

(1) Inventory is measured at fair value.

(2) Buildings and equipment are measured at fair value.

(3) Company P’s investment in Company S is eliminated.

(4) Goodwill is determined by subtracting the fair value of Company S’s net identifiable assets from

the fair value of Company S’s net assets. As stated above, the fair value of Company S is

$64,286. As the fair value of Company S’s net identifiable assets is $60,000, goodwill is

calculated to be $4,286. For illustrative purposes, 70% and 30% of the goodwill is allocable to

Company P and Company S, respectively, because although not realistic, no control premium is

assumed in this example merely for simplicity (that is, the goodwill is allocated to the

controlling and noncontrolling interests proportionately).

(5) Company S’s common stock is eliminated.

(6) Noncontrolling interest is calculated by subtracting the fair value of Company S’s net assets

acquired by Company P ($64,286 x 70% = $45,000) from Company S’s total net assets

($64,286). As indicated in note (4), no control premium has been assumed.



4.2.2 Consolidation in year of combination

Illustration 4-11

Assume that on 31 December 20X1, Company S pays cash dividends of $36,000, of which Company

P’s share is $25,200. In addition, the fair value of Company S’s marketable securities at that date is

$17,000. Company S’s income statement for the year ended 31 December 20X1, is presented in

Figure 4-2.

Figure 4-4: Consolidating work paper to arrive at consolidated income statement, year of

combination, 31 December 20X1 (all amounts in dollars)

Company P

Company S

Adjustments


Revenues — 96,000 96,000

Cost of revenues — 42,000 (7) 4,500 46,500

Gross profit — 54,000 49,500

Income from equity method investment 16,065 — (8) 16,065 —

Selling and administrative — 24,000 (9) 2,550 26,550

Net income 16,065 30,000 22,950

Net income attributable to noncontrolling interest — — (10) 6,885 6,885

Net income attributable to controlling interest 16,065 30,000 16,065

Importantly consolidated net income includes the portion attributable to the noncontrolling interest.

Figure 4-4 presents the consolidating work paper to arrive at the consolidated income statement in

the year of combination, which includes:

(7) An increase to cost of revenues to reflect the sold inventory’s measurement at fair value at the

acquisition date (this example assumes that all acquisition-date inventory was sold).

(8) The elimination of income recognized by Company P under the equity method ($22,950 x 70%).

(9) An increase to selling and administrative expenses to reflect additional depreciation because

buildings and equipment were recognized at fair value at the acquisition date. The depreciation

expense recognized by Company S was $6,000 (on a beginning balance in buildings and

equipment of $60,000). Accordingly, the equipment has a 10-year estimated useful life

($60,000 / $6,000). Applying this useful life to the excess fair value of buildings and equipment

($25,500) creates additional depreciation expense of $2,550 ($25,500 / 10).

(10) Because net income is attributed based on outstanding voting interests in this example, net

income attributable to the controlling and noncontrolling interests is $16,065 ($22,950 x 70%)

and $6,885 ($22,950 x 30%), respectively.



Figure 4-5: Consolidating work paper to arrive at consolidated balance sheet, year of combination,

31 December 20X1 (all amounts in dollars)

Company P

Company S

Adjustments


Cash (11) 25,200 3,000 28,200


Inventory — 30,000 30,000


Investment in Company S (12) 39,365 — (14) 39,365 —

Goodwill — — (15) 4,286 4,286

Total assets 64,565 104,000 156,436


Debt 9,000 — 9,000


Common stock 1,500 30,000 (19) 30,000 1,500


Accumulated other comprehensive income

(16)

3,500

5,000 (20)

5,000 3,500

Retained earnings (deficit) (17) 16,065 (18) (6,000) (21) 6,000 16,065



Total equity 55,565 29,000 72,436


Figure 4-5 presents the consolidating work paper to arrive at the 31 December 20X1 consolidated

balance sheet, which includes:

(11) The $25,200 cash dividend received from Company S ($36,000 x 70%).

(12) The balance of the investment in Company S, adjusted for the earnings and dividends of the

equity method investee

Beginning balance $ 45,000

Attributed earnings 16,065

Attributed other comprehensive income (see adjustment 16) 3,500

Attributed dividends (25,200)

Ending balance $ 39,365

(13) Buildings and equipment at fair value (adjustment 2), less the current year excess depreciation

(adjustment 9) ($25,500 — $2,550).

(16) Company P’s proportion of other comprehensive income from the increase in value of Company

S’s marketable securities in accordance with the equity method of accounting ($5,000 x 70%).

(17) Company P’s retained earnings to reflect the attributed earnings (see calculation in Figure 4-4)

from Company S under the equity method of accounting.

(18) Company S’s retained deficit that reflects net income of $30,000 less cash dividends of $36,000.

(20) Elimination of Company S’s accumulated other comprehensive income.

(21) Elimination of Company S’s retained deficit.



(22) Noncontrolling interest is rolled forward from 1 January 20X1 (see Figure 4-3), as follows:



Attributed other comprehensive income 1,500



Adjustments (14), (15) and (19) are consistent with adjustments (3), (4) and (5), respectively, in the

acquisition-date consolidating balance sheet work paper in Figure 4-3 of Illustration 4-10.

4.2.3 Consolidation after purchasing an additional interest

Illustration 4-12

Assume on 1 January 20X2, Company P borrows $18,000 and uses that cash plus $21,000 of the

cash from the cash dividend received from Company S to purchase, for $39,000, an additional 20%

interest in Company S, bringing its total interest to 90%. The fair value of Company S’s net assets at

the date of the additional investment by Company P is $75,000 (20% of which is $15,000). This

example assumes — for purposes of simplicity — that the consideration paid in excess of the fair

value of the net identifiable assets purchased is attributed to goodwill for purposes of reflecting the

parent’s equity in Company S on the equity method. This assumption is not to be used in practice.

Figure 4-6: Consolidating work paper to arrive at consolidated balance sheet, 1 January 20X2 (all

amounts in dollars)

Company P

Company S

Adjustments


Cash (23) 4,200 3,000 7,200


Inventory — 30,000 30,000



Goodwill — — (27) 4,286 4,286

Total assets 82,565 104,000 135,436


Debt (28) 27,000 — 27,000


Common stock 1,500 30,000 (32) 30,000 1,500

Additional paid-in capital 34,500 — (35) 28,753 5,747

Accumulated other comprehensive income (29) 3,500 5,000 (33) 5,000 (35) 1,000 4,500



Noncontrolling interest — — (35) 11,247 (35) 16,871 5,624

Total equity 55,565 29,000 33,436


Once control is obtained, subsequent purchases and sales of noncontrolling interests while control is

maintained are accounted for as equity transactions in consolidation. Therefore, the 1 January 20X2,

balance sheet is consolidated in Figure 4-6, as follows:



(23) The cash balance is calculated as follows:


Cash received from loan 18,000

Cash paid for additional interest (39,000)


(24) The investment in Company S is increased for the purchase of an additional interest in Company S:


Additional interest purchased 39,000


(28) Company P incurred additional debt of $18,000 to partially fund the purchase of the additional

interest in Company S.

(35) The 31 December 20X1 balance for noncontrolling interest was $16,871. This amount

represented a 30% interest in Company S. Company P purchased an additional 20% interest in

Company S from the noncontrolling interest holders, which was equivalent to two-thirds of this

balance ($16,871 x 2/3 = $11,247). Accordingly, the noncontrolling interest balance is reduced

by $11,247, resulting in a balance of $5,624 ($16,871 — $11,247).17

In addition, accumulated other comprehensive income is adjusted to reflect the portion of the

accumulated other comprehensive income that was purchased ($1,000) from the noncontrolling

interest and is now attributable to Company P ($5,000 x 20%).

The 20% additional interest purchased and the adjustment to accumulated other comprehensive

income are reflected as follows:

Noncontrolling interest $ 11,247

Additional paid-in capital 27,753

Cash $ 39,000


Accumulated other comprehensive income $ 1,000

This example calculates the noncontrolling interest based on a rollforward of the noncontrolling

interest balance. Alternatively, a parent company could maintain a separate ledger for the

subsidiary on a push-down basis (which is the approach used in Appendix A). If this method is

used, the controlling interest and noncontrolling interest should still be tracked separately

because in certain situations, income may be attributed differently from the ownership interests.

Adjustments (25)–(27) and (29)–(34) are consistent with adjustments (13)-(15) and (16)-(21),

respectively, made in the prior year in Figure 4-5 of Illustration 4-11.

17 In this example, the adjustment to the carrying amount of noncontrolling interest is determined by comparing the percentage

change in the parent’s ownership interest to the percentage owned by the noncontrolling interest holders on the date of the transaction. An alternative method to calculate this adjustment would be to apply the percentage change in the parent’s ownership interest to the total carrying amount of the subsidiary’s net assets as of the date of the transaction. However,

determining the carrying amount of a subsidiary’s net assets for use in this calculation may be difficult in certain circumstances. For example, the entity may not apply push-down accounting or may not allocate certain intercompany eliminations to the subsidiary in its accounting records. In these circumstances, deriving the adjustment using the method reflected in this example

may be a more practical alternative.



4.2.4 Consolidation in year 2

Illustration 4-13

Assume on 31 December 20X2, Company S pays cash dividends of $36,000 of which Company P’s share is $32,400. The current market value of Company S’s marketable securities has decreased to $15,500.

Figure 4-7: Consolidating work paper to arrive at consolidated income statement for year ended


Company P

Company S

Adjustments


Revenues — 96,000 96,000

Cost of revenues — 42,000 42,000

Gross profit — 54,000 54,000



Net income 24,705 30,000 27,450



The 31 December 20X2 income statement is consolidated in Figure 4-7, as follows:

(38) Net income is attributed to the controlling and noncontrolling interests based on ownership. The controlling and noncontrolling interests own 90% and 10% of the outstanding stock, respectively. Thus, net income attributable to the controlling and noncontrolling interests is $24,705 ($27,450 x 90%) and $2,745 ($27,450 x 10%), respectively.

See Figure 4-4 of Illustration 4-11, adjustments (8) and (9), for descriptions of adjustments (36) and (37), respectively.

Figure 4-8: Consolidating work paper to arrive at consolidated balance sheet, 31 December 20X2

(all amounts in dollars)

Company P

Company S

Adjustments


Cash (39) 36,600 3,000 39,600 Marketable securities — 15,500 15,500 Inventory — 30,000 30,000 Buildings and equipment, net — 48,000 (41) 20,400 68,400 Investment in Company S (40) 69,320 — (42) 69,320 — Goodwill — — (43) 4,286 4,286

Total assets 105,920 96,500 157,786

Accounts payable — 75,000 75,000 Debt 27,000 — 27,000

Total liabilities 27,000 75,000 102,000 Common stock 1,500 30,000 (47) 30,000 1,500 Additional paid-in capital 34,500 — (48) 28,753 5,747 Accumulated other comprehensive income (44) 2,150 3,500 (49) 3,500 (48) 1,000 3,150 Retained earnings (deficit) (45) 40,770 (46) (12,000) (50) 12,000 40,770



Total equity 78,920 21,500 55,786




Figure 4-8 presents the consolidating work paper to arrive at the year-end consolidated balance sheet

in the year in which the additional interest was purchased, as follows:

(39) The parent received $32,400 as a cash dividend from Company S ($36,000 x 90%). The cash

balance is as follows:


Dividends received 32,400


(40) The investment in Company S was adjusted for the earnings and dividends of the equity method

investee:

Beginning balance (after purchase of additional interest) $ 78,365


Attributed other comprehensive loss (1,350)



(44) Company P recognized its proportion of other comprehensive loss for the year (from the

decrease in value of Company S’s marketable securities) in accordance with the equity method

of accounting ($1,500 x 90%). This amount was subtracted from last year’s balance of $3,500

($3,500 — $1,350) to arrive at Company P’s accumulated other comprehensive income. For this

example, Company P has no comprehensive income other than its proportionate share of

Company S’s comprehensive income.

(45) Retained earnings for Company P reflects the attributed earnings from Company S under the

equity method of accounting. Although a statement of shareholders’ equity would generally be

presented, for illustrative purposes, the statement has been excluded. A rollforward of retained

earnings follows:


Earnings recognized under the equity method of accounting 24,705


(46) Retained deficit for Company S is rolled forward as follows:

Beginning balance $ (6,000)

Net income 30,000

Dividends declared (36,000)

Ending balance $ (12,000)

(51) Noncontrolling interest is calculated by rolling forward the balance from 1 January 20X2 (see

Figure 4-6), as follows:



Attributed other comprehensive loss (150)



Adjustments (41)–(43) and (47)–(50) are consistent with adjustments (25)–(27) and (32)–(35),

respectively, in the prior year in Figure 4-6 of Illustration 4-11.



4.2.5 Consolidation after selling an interest without loss of control

Illustration 4-14

Assume on 1 January 20X3, Company P sells a 30% interest in Company S for $22,500 cash, decreasing its total interest to 60%.

Figure 4-9: Consolidating work paper to arrive at consolidated balance sheet, 1 January 20X3


Company P

Company S

Adjustments


Cash (52) 59,100 3,000 62,100


Inventory — 30,000 30,000



Goodwill — — (56) 4,286 4,286

Total assets 105,920 96,500 180,286


Debt 27,000 — 27,000


Common stock 1,500 30,000 (60) 30,000 1,500

Additional paid-in capital 34,500 — (62) 28,753 (64) 9,693 15,440 Accumulated other comprehensive income (57) 2,150 3,500 (63) 4,550 (62) 1,000 2,100




Total equity 78,920 21,500 78,286


Once control is obtained, purchases and sales of noncontrolling interests are accounted for as equity transactions. Therefore, the 1 January 20X3 balance sheet is consolidated in Figure 4-9, as follows:

(52) The cash balance rollforward is as follows:


Cash received from sale 22,500


(53) The investment in Company S adjusted for the sale of a partial interest in Company S is as follows:


Partial interest sold (22,500)18


18 Under ASC 323 and the equity method of accounting, only the carrying amount of the portion of the investment sold would be deducted from the investment account, with a gain or loss being recognized for the difference between the fair value of the consideration received and the carrying value of the investment. For simplicity, the entire fair value of the consideration received

has been deducted from the investment account. If the gain or loss had been recognized, it would be eliminated in consolidation.



(63) To eliminate the accumulated other comprehensive income of Company S ($3,500), plus the

adjustment related to the sale of the partial interest ($1,050), as discussed in item 64 below.

(64) The 31 December 20X2 balance for noncontrolling interest is $4,619. This amount represented

a 10% interest in Company S. Company P sold a 30% interest in Company S, which was

equivalent to three times this balance. Accordingly, the noncontrolling interest balance is

adjusted to $18,476 ($4,619 + $13,857).17

In addition, accumulated other comprehensive income is adjusted to reflect the portion of the

accumulated other comprehensive income that was sold ($1,050) and is no longer attributable

to Company P ($3,500 x 30%).

The adjusting entries made to reflect the sale of the 30% additional interest and adjust

accumulated other comprehensive income are as follows:

Cash $ 22,500

Noncontrolling interest $ 13,857


Accumulated other comprehensive income $ 1,050


This example calculates the noncontrolling interest based on a rollforward of the noncontrolling

interest balance. Alternatively, a parent company could maintain a separate ledger for the

subsidiary on a push-down basis (the approach used in Appendix A). If this method is used, the

controlling interest and noncontrolling interest should still be tracked separately because in

certain situations, income may be attributed differently from the ownership interests.

Adjustments (54)–(60) (61), and (62) are consistent with (41)-(47), (50), and (48), respectively, in the

prior year in Figure 4-8 of Illustration 4-13.

4.2.6 Consolidation in year 3

Illustration 4-15:

On 31 December 20X3, Company S pays cash dividends of $36,000 of which Company P’s share is

$21,600. The fair value of Company S’s marketable securities has increased to $17,500.

Figure 4-10: Consolidating work paper to arrive at consolidated income statement, for year ended


Company P

Company S

Adjustments


Revenues — 96,000 96,000

Cost of revenues — 42,000 42,000

Gross profit — 54,000 54,000



Net income 16,470 30,000 27,450





The 31 December 20X3 income statement is consolidated in Figure 4-10, as follows:

(67) Net income is attributed to the controlling and noncontrolling interest based on ownership

interests. The controlling and noncontrolling interests own 60% and 40% of the outstanding

stock, respectively. Thus, net income attributable to the controlling and noncontrolling interests

is $16,470 ($27,450 x 60%) and $10,980 ($27,450 x 40%), respectively.

See Figure 4-4 of Illustration 4-11, adjustments (8) and (9), for explanations of adjustments (65) and

(66), respectively.

Figure 4-11: Consolidating work paper to arrive at consolidated balance sheet, 31 December

20X3 (all amounts in dollars)

Company P

Company S

Adjustments


Cash (68) 80,700 3,000 83,700


Inventory — 30,000 30,000



Goodwill — — (72) 4,286 4,286

Total assets 123,590 92,500 195,336


Debt 27,000 — 27,000


Common stock 1,500 30,000 (76) 30,000 1,500

Additional paid-in capital 34,500 — (77) 28,753 (79) 9,693 15,440


(73)

3,350

5,500 (78)

6,550

(77)

1,000 3,300




Total equity 96,590 17,500 93,336


The balance sheet is consolidated as of 31 December 20X3 in Figure 4-11, as follows:

(68) Company P received $21,600 as a cash dividend from Company S ($36,000 x 60%). The cash

balance rollforward is as follows:


Dividend received 21,600


(69) The rollforward of the investment in Company S, adjusted for the earnings and dividends of the

equity method investee is as follows:








(73) Company P recognized its proportion of other comprehensive income for the year (from the

increase in value of Company S’s marketable securities) in accordance with the equity method of

accounting ($2,000 x 60%), which was added to last year’s balance of $2,150.

(74) Retained earnings for Company P reflect the attributed earnings from Company S under the

equity method of accounting. Although a statement of shareholders’ equity would generally be

presented, for illustrative purposes, the statement has been excluded. A rollforward of retained

earnings is as follows:


Earnings recognized under the equity method of accounting 16,470


(75) Retained deficit for Company S is rolled forward as follows:

Beginning balance $ (12,000)

Net income 30,000


Ending balance $ (18,000)

(78) To eliminate the accumulated other comprehensive income of Company S ($5,500), as well as

last year’s adjustment related to the sale of a partial interest in Company S ($1,050).

(81) The rollforward of the noncontrolling interest balance from 1 January 20X3 (see Figure 4-9), as

follows:



Attributed other comprehensive income 800



Adjustments (70)–(72), (76), (77), (79) and (80) are consistent with adjustments (54)-(56), (60), (62),

(64), and (61), respectively in Figure 4-9 of Illustration 4-14.


5 Intercompany eliminations

5.1 Procedures for eliminating intercompany balances and transactions



Procedures

810-10-45-1

In the preparation of consolidated financial statements, intra-entity balances and transactions shall be

eliminated. This includes intra-entity open account balances, security holdings, sales and purchases,

interest, dividends, and so forth. As consolidated financial statements are based on the assumption

that they represent the financial position and operating results of a single economic entity, such

statements shall not include gain or loss on transactions among the entities in the consolidated group.

Accordingly, any intra-entity profit or loss on assets remaining within the consolidated group shall be

eliminated; the concept usually applied for this purpose is gross profit or loss (see also paragraph 810-

10-45-8).

810-10-45-2

The retained earnings or deficit of a subsidiary at the date of acquisition by the parent shall not be

included in consolidated retained earnings.

810-10-45-4

When a subsidiary is initially consolidated during the year, the consolidated financial statements shall

include the subsidiary's revenues, expenses, gains, and losses only from the date the subsidiary is

initially consolidated.

810-10-45-5

Shares of the parent held by a subsidiary shall not be treated as outstanding shares in the consolidated

statement of financial position and, therefore, shall be eliminated in the consolidated financial

statements and reflected as treasury shares.

810-10-45-8

If income taxes have been paid on intra-entity profits on assets remaining within the consolidated

group, those taxes shall be deferred or the intra-entity profits to be eliminated in consolidation shall be

appropriately reduced.

An entity required to consolidate another entity must apply consolidation procedures to present the

results of operations and financial position of the group (that is, the parent and the entities required to be

consolidated) as a single consolidated entity. The separate financial statements of each entity are

combined and adjusted to eliminate intercompany transactions and ownership interests in order to

present transactions and ownership interests only with parties outside the consolidated group. This is

consistent with the economic entity concept.



As consolidated financial statements represent the financial position and operating results of a single

economic entity, such financial statements should not include any intercompany receivables, payables,

investments, capital, revenues, costs of sales or profits or losses between the entities within the

consolidated group. Accordingly, any intercompany profit or loss on assets or liabilities remaining within

the consolidated entity should be eliminated, resulting in the carrying value of the assets and liabilities

being adjusted to the historical carrying value that existed prior to the intercompany transaction.

The elimination of intercompany receivables and payables is not complex if balance sheet date cut-offs

for intercompany transactions are consistent among entities within the consolidated group. If inventories

or other assets of a consolidated group are transferred between members of the consolidated group,

intercompany revenues, cost of sales and profit or loss recorded by the transferor should be eliminated

in consolidation.

The goal of intercompany income elimination is to remove the income (or loss) arising from transactions

between companies within the consolidated entity and to adjust the carrying amount of the assets to

their historical cost basis (as compared with the intercompany asset transfer price basis) of the

transferred asset in the consolidated financial statements. This practice is continued until the income is

realized through a sale to outside parties or in the case of depreciable assets, the asset is depreciated

over its estimated useful life.

The elimination of intercompany losses should be consistent with the elimination of intercompany profits.

Accordingly, if losses have been recognized on inventory acquired in an intercompany transaction, those

losses must be eliminated to state the inventory in the consolidated statement of financial position at its

cost to the consolidated entity. However, careful consideration should be given to the lower-of-cost-or-

market test of inventory for the purchasing company. The market value of the inventory must not be less

than the selling company’s cost. If the market value is exceeded by the consolidated inventory cost, the

loss that would have otherwise been eliminated in consolidation should be adjusted downward. That is,

intercompany losses should not be eliminated if they represent a lower-of-cost-or-market adjustment.

5.1.1 Effect of noncontrolling interest on elimination of intercompany amounts



Procedures

810-10-45-18

The amount of intra-entity income or loss to be eliminated is not affected by the existence of a

noncontrolling interest. The complete elimination of the intra-entity income or loss is consistent with

the underlying assumption that consolidated financial statements represent the financial position and

operating results of a single economic entity. The elimination of the intra-entity income or loss may be

allocated between the parent and noncontrolling interests.‖

The existence of a noncontrolling interest in the consolidated group creates complexities related to the

elimination of intercompany profits. ASC 810 provides guidance for preparing consolidated financial

statements, including the treatment of noncontrolling interest, in ASC 810-10-45-18.

ASC 810 provides for no distinction between wholly-owned and partially-owned entities with respect to

the need for the elimination of intercompany transactions. In both cases, all transactions with members

of the consolidated group are considered internal transactions that must be eliminated fully, regardless

of the percentage ownership.



Because individual companies in a consolidated group generally record transactions with members of the

consolidated group in a manner similar to transactions with entities outside of the group, sales, cost of

goods sold and profit may be recognized by the selling entity even though there has not been a transaction

outside of the consolidated group. Because income cannot be recognized by the consolidated group until it

has been realized in a transaction with a third party, there may be unrealized intercompany profit or loss

requiring elimination.

Because noncontrolling interest is a component of equity, transfers of assets between entities in the

consolidated group are accounted for as internal transfers for which no earnings are recognized until

they are realized through an exchange transaction with a party outside of the consolidated group.

Unrealized intercompany income and losses are always eliminated fully in preparing consolidated

financial statements. While the entire amount must be eliminated, when there is a noncontrolling

interest, in certain circumstances, a determination must be made as to how that elimination should be

allocated between the controlling and noncontrolling interests.

When a sale is from a parent to a subsidiary (downstream transaction), profit or loss is recognized by the

parent. Accordingly, we believe the full amount of the elimination of the intercompany profit or loss

should be against the controlling interest. Otherwise, the parent would continue to recognize a portion of

the unrealized income or loss in income even though ASC 810-10-45-1 requires intercompany

transactions to be eliminated fully.

When a subsidiary sells to the parent (upstream transaction) and intercompany profit or loss arises, the

profit or loss may be eliminated against the controlling and noncontrolling interest proportionately.

In either case, the amount of profit eliminated from the consolidated carrying amount of the asset is not

affected by the existence of noncontrolling interest in the subsidiary.

Illustration 5-1: Parent sells to a majority-owned subsidiary (downstream transaction)

In a transaction in which a parent sells inventory to a majority-owned subsidiary, and some or all of the

inventory remains on hand at a period-end, ASC 810 requires that the full amount of the profit arising

from the intercompany transaction related to the inventory remaining on hand be eliminated against

the parent’s interest and eliminated from the carrying amount of the asset. That is, because only the

parent has recognized the revenues, costs of sale, and resultant profit and loss in its financial

statements, no portion of these items may be allocated to noncontrolling interests.

Assumptions:

Company P owns an 80% interest in Company S.

The 1 January 20X6, beginning-of-year balance sheets for Company P and Company S are as follows

(all amounts in dollars):

Company P Company S

Cash – 300,000

Inventory 200,000 50,000

Buildings and equipment, net – 150,000

Investment in Company S 400,000 –

Total assets 600,000 500,000

Current liabilities 100,000 –

Common stock 200,000 500,000

Retained earnings 300,000 –

Noncontrolling interest – –

Total liabilities and equity 600,000 500,000



1) During the year, Company P sells inventory to Company S, which remains in Company S’s

inventory at year end. A summary of the effect of the transaction on Company P’s income

statement is as follows:

Revenues $ 100,000

Cost of sales 70,000

Gross profit $ 30,000

2) The inventory sale is the only transaction between Company P and Company S during 20X6.

Further, the inventory remains on hand at Company S at year end.

3) Prior to consolidation, Company P accounts for its investment in Company S using the equity method.



Company P Company S

Adjustments


Revenues 500,000 270,000 (1) 100,000 670,000 Cost of revenues 200,000 100,000 (2) 70,000 230,000

Gross profit 300,000 170,000 440,000 Selling and administrative 100,000 20,000 120,000

Net income 200,000 150,000 320,000 Net income attributable to


— — (3) 30,000 30,000

Net income attributable to controlling interest

200,000 150,000 290,000

Figure 5-1 illustrates the elimination of intercompany transactions between Company P and Company S for the consolidated income statement, as follows:

(1) Intercompany revenue from the downstream sale is eliminated.

(2) Intercompany cost of revenues from the downstream sale is eliminated.

(3) Net income of Company S is attributed to the noncontrolling interest ($150,000 x 20%).


(all amounts in dollars) Adjustments

Company P Company S Debit Credit Consolidated

Cash 200,000 450,000 650,000 Intercompany receivable 100,000 — (4) 100,000 — Inventory 200,000 150,000 (5) 30,000 320,000 Buildings and equipment, net — 150,000 150,000 Investment in Company S 400,000 — (6) 400,000 —

Total assets 900,000 750,000 1,120,000

Current liabilities 200,000 — 200,000 Intercompany payable — 100,000 (4) 100,000 —

Total liabilities 200,000 100,000 200,000 Capital stock 200,000 500,000 (7) 500,000 200,000 Retained earnings 500,000 150,000 (8) 180,000 (9) 120,000 590,000



Total equity 700,000 650,000 920,000

Total liabilities and equity 900,000 750,000 1,120,000



Figure 5-2 illustrates the elimination of intercompany transactions between Company P and Company

S for the consolidated balance sheet, as follows:

(4) Intercompany receivable and payable from the downstream sale are eliminated.

(5) Intercompany profit remaining in inventory at year end from the downstream sale is eliminated

(see notes 1 and 2, under Assumptions).

(6) Company P’s investment in Company S is eliminated.

(7) Company S’s common stock is eliminated.

(8) Company S’s retained earnings balance is eliminated ($150,000) and the intercompany profit

on the downstream sale is eliminated ($30,000).

(9) Company P recognizes its proportionate share (80%) of income from Company S.

(10) Noncontrolling interest is recognized at its initial balance of $100,000 ($500,000 x 20%) plus

its proportionate share of income from Company S ($30,000).

Under the economic unit concept, 100% of intercompany sales, receivables, payables, purchases, cost of

sales and unrealized intercompany profits and losses are eliminated. Profits and losses on downstream

transactions are eliminated completely against the controlling interest.

No profit accrues to the stockholders of the selling entity under the economic unit concept because both

the controlling and noncontrolling interests are owners of a single economic unit (albeit with different

claims on the entity’s assets). After incorporating elimination entries, transfers of inventory are to be

accounted for on the same basis as internal transfers between departments of a single entity at cost.

Illustration 5-2: Majority-owned subsidiary sells to parent (upstream transaction)

Assumptions:

Same as Illustration 5-1, except for the following:

1) Rather than a downstream sale from P to S, during the year, S sells inventory to P, which remains

in P’s inventory at year-end. A summary of the result of the transaction on S’s income statement

is as follows:

Revenues $ 100,000

Cost of sales 70,000


Under the economic unit concept, the transfer of inventory between a subsidiary and its parent is

viewed as a transfer between departments or divisions/components of a single entity. When a

majority-owned subsidiary sells inventory to its parent, under ASC 810 the unrealized profit may be

proportionately eliminated against the parent’s interest and the noncontrolling interest.





Company P Company S

Adjustments


Revenues 500,000 270,000 (11) 100,000 670,000

Cost of revenues 200,000 100,000 (12) 70,000 230,000

Gross profit 300,000 170,000 440,000

Selling and administrative 100,000 20,000 120,000

Net income 200,000 150,000 320,000




S for the consolidated income statement, as follows:

(13) Net income of Company S is attributed to the noncontrolling interest, including its proportionate

share of the elimination of the intercompany transaction (($150,000 — $30,000) x 20%).

For explanations of items (11) and (12), see items (1) and (2), respectively, in Figure 5-1.



Company P

Company S

Adjustments

Debit Credit Consolidated

Cash 300,000 350,000 650,000

Intercompany receivable — 100,000 (14) 100,000 —

Inventory 200,000 150,000 (15) 30,000 320,000

Building, net — 150,000 150,000


Total assets 900,000 750,000 1,120,000

Current liabilities 100,000 100,000 200,000

Intercompany payable 100,000 — (14) 100,000 —


Capital stock 200,000 500,000 (17) 500,000 200,000

Retained earnings 500,000 150,000 (18) 150,000 (19) 96,000 596,000



Total equity 700,000 650,000 920,000




(19) Company P recognizes its proportionate share (80%) of income from Company S, including its

share of the intercompany profit elimination (($150,000 — $30,000) x 80%).

(20) Noncontrolling interest is recognized at its initial balance of $100,000 plus its proportionate

share of income from Company S ($24,000, see explanation in income statement).

For explanations of items (14) — (18), see items (4) — (8) in Figure 5-2.



The net income attributable to the controlling interest in Illustration 5-2 exceeds the net income

attributable to the controlling interest in Illustration 5-1 by $6,000 because a portion of the elimination

of the unrealized income, which is reflected in the subsidiary with the noncontrolling interest, has been

allocated to the noncontrolling interest ($30,000 x 20% = $6,000). Net income of the consolidated entity is

the same in both examples because of the requirement to fully eliminate the intercompany income or loss.

As described in Illustration 5-1, under the economic entity concept, 100% of intercompany sales,

receivables, payables, purchases, cost of sales and unrealized intercompany profits and losses are

eliminated. Profits and losses are eliminated in proportion to the interests in the selling entity.

No profit accrues to the stockholders of the selling entity under the economic entity concept because both

the controlling and noncontrolling interests are owners of a single economic entity (albeit with different

claims on the entity’s net assets). After incorporating elimination entries, transfers of inventory are to be

accounted for on the same basis as internal transfers between departments of a single entity at cost.

Illustration 5-3: Parent makes an intercompany loan to a majority-owned subsidiary and

the interest is expensed

Assumptions:


1) During the year, P makes an intercompany loan to S for $1,000,000 with an annual interest rate

of 10%.

2) S expenses the current year interest on the intercompany loan and remits cash to P for the annual

interest incurred on the intercompany loan.

3) The loan is the only transaction between P and S during 20X6 (that is, the intercompany sales

described in Illustration 5-1 did not occur).



Company P Company S

Adjustments


Revenues 500,000 270,000 770,000

Cost of revenues 200,000 100,000 300,000

Gross profit 300,000 170,000 470,000


Interest income 100,000 — (21) 100,000 —

Interest expense — 100,000 (21) 100,000 —

Net income 300,000 50,000 350,000




S for the consolidated income statement, as follows:

(21) Intercompany interest income and expense are eliminated.

(22) Net income of Company S is attributed to the noncontrolling interest.





Company P

Company S

Adjustments


Cash 300,000 1,350,000 1,650,000

Inventory 200,000 150,000 350,000

Buildings and equipment, net — 150,000 150,000

Intercompany loan 1,000,000 — (23) 1,000,000 —


Total assets 1,900,000 1,650,000 2,150,000

Current liabilities 1,100,000 100,000 1,200,000

Intercompany loan — 1,000,000 (23) 1,000,000 —

Total liabilities 1,100,000 1,100,000 1,200,000

Capital stock 200,000 500,000 (25) 500,000 200,000




Total equity 800,000 550,000 950,000

Total liabilities and equity 1,900,000 1,650,000 2,150,000



(23) Intercompany loan is eliminated.

(27) Company P recognizes its proportionate share (80%) of income from Company S ($50,000 x 80%).


share of income from Company S ($10,000).

For explanations of items (24) — (26), see items (6)-(8) in Figure 5-2.

Prior to taking into consideration the noncontrolling interest in S, the elimination of the intercompany

interest income and expense has no effect on the combined net income of P and S. However, as S has

absorbed an expense of $100,000, P receives the benefit of the interest to the extent of the

noncontrolling interest. This benefit is realized immediately as S recorded the full amount of the

interest as a current period expense.



Illustration 5-4: Parent makes an intercompany loan to a majority-owned subsidiary and

the interest is capitalized

Assumptions:


1) During the year, P makes an intercompany loan to S with a principal of $1,000,000 with an annual

interest rate of 10%. The proceeds of the loan are used to construct a building.

2) S capitalizes the current year interest on the intercompany loan as part of the cost of the building

and remits cash to P for the annual interest incurred on the intercompany loan.

3) The loan is the only transaction between P and S during 20X6 (that is, the intercompany sales

described in Illustration 5-1 did not occur).



Company P Company S

Adjustments


Revenues 500,000 270,000 770,000 Cost of revenues 200,000 100,000 300,000

Gross profit 300,000 170,000 470,000 Selling and administrative 100,000 20,000 120,000 Interest income 100,000 — (29) 100,000 — Interest expense — — —


noncontrolling interest — — (30) 30,000 30,000


Figure 5-7 illustrates the elimination of intercompany transactions between Company P and Company S for the consolidated income statement, as follows:

(29) Interest income on the intercompany loan recognized by Company P is eliminated.




Company P

Company S

Adjustments


Cash 300,000 350,000 650,000 Inventory 200,000 150,000 350,000 Buildings and equipment, net — 1,250,000 (31) 100,000 1,150,000 Intercompany loan 1,000,000 — (32) 1,000,000 — Investment in Company S 400,000 — (33) 400,000 —

Total assets 1,900,000 1,750,000 2,150,000

Current liabilities 1,100,000 100,000 1,200,000 Intercompany loan — 1,000,000 (32) 1,000,000 —


Capital stock 200,000 500,000 (34) 500,000 200,000 Retained earnings 600,000 150,000 (35) 250,000 (36) 120,000 620,000



Total equity 800,000 650,000 950,000






(31) Capitalized interest from outstanding intercompany loan is eliminated.

(32) The intercompany loan is eliminated.

(35) The retained earnings of Company S are eliminated ($150,000), and the interest income

recognized by Company P on the intercompany loan is eliminated ($100,000).

(36) Company P recognizes its proportionate share (80%) of income from Company S ($150,000 x

80%).



For explanations of items (33) and (34), see items (6) and (7), respectively, in Figure 5-2.

As S has capitalized the interest expense paid by the subsidiary as part of the cost of its building, the

interest has not been expensed in the income statement of S. As such, P does not receive any benefit of

the interest income until the expense is recognized which will occur as the building is depreciated by S.

Year 2

In Year 2, Assume S depreciates the newly constructed building over 10 years which results in annual

depreciation expense of $125,000 ($1,250,000 / 10 years = $125,000) that is included in S’s cost of

revenues. Further, for simplicity, assume (1) P had no other transactions during Year 2 and (2) S does

not incur any additional interest expense in Year 2.

Figure 5-9: Consolidating work paper to arrive at consolidated income statement, for year

ended 31 December 20X7 (all amounts in dollars)

Company P Company S

Adjustments


Revenues — 400,000 400,000

Cost of revenues — 250,000 (38) 10,000 240,000

Gross profit — 150,000 160,000

Net income — 150,000 160,000


Net income attributable to controlling interest — 150,000 130,000


S for the Year 2 consolidated income statement, as follows:

(38) The excess depreciation from the capitalized interest on the intercompany loan is eliminated.






Figure 5-10 illustrates the elimination of intercompany transactions between Company P and

Company S for the consolidated balance sheet in Year 2, as follows:

(40) Capitalized interest expense from the prior year ($100,000) less current year depreciation

($10,000) is eliminated.

(45) Retained earnings is eliminated for the prior year recognition of interest income ($100,000) by

Company P.

(46) Prior year income attributable to the controlling interest ($120,000) is added to retained earnings.

(47) Company P recognizes its attributable share of income from Company S (($150,000 +

$10,000) x 80%).


share of income from Company S of $30,000 for both Years 1 and 2.

For explanations of items (41) — (44), see items (5)-(8) in Figure 5-2 and (32)-(35) in Figure 5-8.

Adjustments


Cash 300,000 625,000 925,000

Inventory 200,000 150,000 350,000

Buildings and equipment, net — 1,125,000 (40) 90,000 1,035,000

Intercompany loan 1,000,000 — (41) 1,000,000 —


Total assets 1,900,000 1,900,000 2,310,000

Current liabilities 1,100,000 100,000 1,200,000

Intercompany loan — 1,000,000 (41) 1,000,000 —

Total Liabilities 1,100,000 1,100,000 1,200,000

Capital stock 200,000 500,000 (43) 500,000 200,000


(45) 100,000 (47) 130,000



Total equity 800,000 800,000 1,110,000




Illustration 5-5: Parent charges subsidiary a management fee

Assumptions:


1) During the year, Company P charges Company S a management fee of $1,500 for its accounting

and finance services.

2) The management fee is the result of a contractual arrangement negotiated between P and S.

3) The management fee is the only transaction between P and S during 20X6 (that is, the

intercompany sales described in Illustration 5-1 did not occur).

Figure 5-11: Consolidating work paper to arrive at consolidated income statement, for year

ended 31 December 20X6 (all amounts in dollars)

Company P Company S

Adjustments


Revenues 500,000 270,000 770,000 Cost of revenues 200,000 100,000 300,000

Gross profit 300,000 170,000 470,000 Selling and administrative 100,000 20,000 120,000 Intercompany expense — 1,500 (49) 1,500 — Intercompany revenue 1,500 — (49) 1,500 —


noncontrolling interest — — (50) 29,700 29,700



Company S for the consolidated income statement, as follows:

(49) Intercompany revenue and expense resulting from the management fee of $1,500 paid to

Company P are eliminated.

(50) Net income of Company S is attributed to the noncontrolling interest, including its attributable

share of the management fee (($150,000 — $1,500) x 20%).


20X6 (all amounts in dollars) Adjustments


Cash 200,000 450,000 650,000 Inventory 200,000 150,000 350,000 Buildings and equipment, net — 150,000 150,000 Investment in Company S 400,000 — (51) 400,000 —

Total assets 800,000 750,000 1,150,000

Current liabilities 98,500 101,500 200,000

Total liabilities 98,500 101,500 200,000 Capital stock 200,000 500,000 (52) 500,000 200,000 Retained earnings 501,500 148,500 (53) 148,500 (55) 120,300 620,300 (54) 1,500

Total parent shareholders’ equity

701,500 648,500 820,300


Total equity 701,500 648,500 950,000





Company S for the consolidated balance sheet, as follows:

(54) The income recognized by Company P from the management fee is eliminated from retained

earnings.

(55) Company P recognizes its attributable share of income from Company S, including the

realization of the portion of the management fee attributable to the noncontrolling interest

($150,000 x 80% + $1,500 x 20%).



For explanations of items (51) — (53), see items (6)-(8) in Figure 5-2.

Variable interest entities

Question 5.1 How should intercompany eliminations be attributed to the noncontrolling interests for consolidated

variable interest entities?

The principles described above (see Section 5.1.1) and reflected in the Illustrations are equally applicable

to all consolidated entities, including variable interest entities. It is common for variable interest entities

to have substantive profit sharing arrangements and therefore the use of relative ownership percentages

may not be appropriate. Our FRD, Consolidation of variable interest entities, provides further interpretive

guidance and examples on attributing intercompany eliminations to noncontrolling interests.


6 Loss of control over a subsidiary or a group of assets

6.1 Deconsolidation of a subsidiary or derecognition of certain groups of assets


Derecognition

Deconsolidation of a Subsidiary or Derecognition of a Group of Assets

810-10-40-3A

The deconsolidation and derecognition guidance in this Section applies to the following:

a. A subsidiary that is a nonprofit activity or a business, except for either of the following:

1. A sale of in substance real estate (for guidance on a sale of in substance real estate, see

Subtopic 360-20 or Subtopic 976-605)

2. A conveyance of oil and gas mineral rights (for guidance on conveyances of oil and gas


b. A group of assets that is a nonprofit activity or a business, except for either of the following:

1. A sale of in substance real estate (for guidance on a sale of in substance real estate, see

Subtopic 360-20 or Subtopic 976-605)

2. A conveyance of oil and gas mineral rights (for guidance on conveyances of oil and gas


c. A subsidiary that is not a nonprofit activity or a business if the substance of the transaction is not

addressed directly by guidance in other Topics that include, but are not limited to, all of the

following:

1. Topic 605 on revenue recognition

2. Topic 845 on exchanges of nonmonetary assets

3. Topic 860 on transferring and servicing financial assets

4. Topic 932 on conveyances of mineral rights and related transactions

5. Topic 360 or 976 on sales of in substance real estate.

810-10-40-4

A parent shall deconsolidate a subsidiary or derecognize a group of assets specified in the preceding

paragraph as of the date the parent ceases to have a controlling financial interest in that subsidiary or

group of assets. See paragraph 810-10-55-4A for related implementation guidance.



Implementation Guidance and Illustrations

Deconsolidation of a Subsidiary

810-10-55-4A

All of the following are circumstances that result in deconsolidation of a subsidiary under paragraph

810-10-40-4:

a. A parent sells all or part of its ownership interest in its subsidiary, and as a result, the parent no

longer has a controlling financial interest in the subsidiary.

b. The expiration of a contractual agreement that gave control of the subsidiary to the parent.

c. The subsidiary issues shares, which reduces the parent’s ownership interest in the subsidiary so

that the parent no longer has a controlling financial interest in the subsidiary.

d. The subsidiary becomes subject to the control of a government, court, administrator, or regulator.

Derecognition


810-10-40-5

If a parent deconsolidates a subsidiary or derecognizes a group of assets through a nonreciprocal

transfer to owners, such as a spinoff, the accounting guidance in Subtopic 845-10 applies. Otherwise,

a parent shall account for the deconsolidation of a subsidiary or derecognition of a group of assets

specified in paragraph 810-10-40-3A by recognizing a gain or loss in net income attributable to the

parent, measured as the difference between:

a. The aggregate of all of the following:

1. The fair value of any consideration received

2. The fair value of any retained noncontrolling investment in the former subsidiary or group of

assets at the date the subsidiary is deconsolidated or the group of assets is derecognized

3. The carrying amount of any noncontrolling interest in the former subsidiary (including any

accumulated other comprehensive income attributable to the noncontrolling interest) at the

date the subsidiary is deconsolidated.

b. The carrying amount of the former subsidiary’s assets and liabilities or the carrying amount of the

group of assets.

810-10-40-6

A parent may cease to have a controlling financial interest in a subsidiary through two or more

arrangements (transactions). Circumstances sometimes indicate that the multiple arrangements

should be accounted for as a single transaction. In determining whether to account for the

arrangements as a single transaction, a parent shall consider all of the terms and conditions of the

arrangements and their economic effects. Any of the following may indicate that the parent should

account for the multiple arrangements as a single transaction:

a. They are entered into at the same time or in contemplation of one another.

b. They form a single transaction designed to achieve an overall commercial effect.

c. The occurrence of one arrangement is dependent on the occurrence of at least one other arrangement.

d. One arrangement considered on its own is not economically justified, but they are economically

justified when considered together. An example is when one disposal is priced below market,

compensated for by a subsequent disposal priced above market.



Note:

The Emerging Issues Task Force (EITF) currently is considering agenda Issue 11-A, ―Parent’s

Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or

Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.‖ The EITF’s

conclusions on this Issue would make certain amendments to the Codification excerpt above.

In September 2012, the FASB exposed the EITF’s conclusions for public comment. The comment

period on the EITF’s proposal ends 10 December 2012. Readers should monitor developments in this

area closely.

A parent company deconsolidates a subsidiary or derecognizes a group of assets when that parent

company no longer controls the subsidiary or group of assets specified in ASC 810-10-40-3A. When

control is lost, the parent-subsidiary relationship no longer exists and the parent derecognizes the assets

and liabilities of the qualifying subsidiary or group of assets. The FASB concluded that the loss of control

and the related deconsolidation of a subsidiary or derecognition of a group of assets specified in

ASC 810-10-40-3A is a significant economic event that changes the nature of the investment held in the

subsidiary or group of assets.

Based on this consideration, a gain or loss is recognized upon the deconsolidation of a subsidiary or

derecognition of a group of assets. Any remaining ownership interest in the subsidiary or entity acquiring

the group of assets specified in ASC 810-10-40-3A (which would then be classified as a noncontrolling

interest) is measured at its fair value. That ownership interest is subsequently accounted for in

accordance with ASC 320, ASC 323 or other applicable GAAP.

If the retained noncontrolling interest is accounted for as an equity method investment, the former

parent would be required to identify and determine the acquisition date fair value of the underlying

assets and liabilities of the investee (with certain exceptions),pursuant to ASC 323. While the former

parent would not recognize those identified assets and liabilities, it must track its bases in them (often

through a process referred to as ―memo‖ accounting) to account for the effect of any differences

between its bases and the bases recognized by the investee. Chapter 4 of our FRD, Equity method

investments provides further guidance on applying the equity method.

6.1.1 Loss of control

We believe the guidance in ASC 810 applies to the loss of control and deconsolidation of any subsidiary

or group of assets specified in ASC 810-10-40-3A, regardless of the manner in which control was lost

(except for nonreciprocal transfers to owners). Several events may lead to a loss of control of a

subsidiary specified in ASC 810-10-40-3A, and not all events are the direct result of actions taken by the

parent company. The simplest example of the loss of control of a subsidiary is when a parent company

decides to sell all of its interest in a subsidiary. Actions of the subsidiary also can cause a loss of control.

When a subsidiary issues shares to third parties, the parent’s interest is diluted, potentially to the point in

which the parent no longer controls the subsidiary. A loss of control can also result if a government,

court, administrator or regulator takes legal control of a subsidiary or a group of assets as specified in

ASC 810-10-40-3A.

6.1.2 Nonreciprocal transfers to owners

ASC 810’s provisions do not apply to spinoffs or other nonreciprocal transactions with owners. A spinoff

occurs when a parent company transfers the subsidiary’s stock or a group of assets that it owns to its

own shareholders. Spinoffs should be accounted for in accordance with ASC 845.



6.1.3 Gain/loss recognition

When a subsidiary or a group of assets specified in ASC 810-10-40-3A is deconsolidated or

derecognized, the carrying amounts of the previously consolidated subsidiary’s assets and liabilities or a

group of assets are removed from the consolidated statement of financial position. Generally, a gain or

loss is recognized as the difference between:

1) The sum of the fair value of any consideration received, the fair value of any retained noncontrolling

investment in the former subsidiary or group of assets at the date the subsidiary is deconsolidated or

the group of assets is derecognized, and the carrying amount of any noncontrolling interest in the

former subsidiary (including any accumulated other comprehensive income attributable to the

noncontrolling interest) at the date the subsidiary is deconsolidated, and

2) The carrying amount of the former subsidiary’s assets and liabilities or the carrying amount of the

group of assets.

Importantly, because the loss of control is deemed to be a significant economic event, when an entity

loses control of a subsidiary or a group of assets specified in ASC 810-10-40-3A but retains a

noncontrolling interest in the former subsidiary or entity that acquired the group of assets, that retained

interest is measured at fair value and is included in the calculation of the gain/loss on deconsolidation of

the subsidiary or the derecognition of a group of assets.

In recognizing a gain, SAB Topic 5-E (codified in ASC 810-10-S99-5) states that an entity should identify

all of the elements of the divesture arrangement and allocate the consideration exchanged to each of

those elements. For example, if the divesture arrangement included elements of guarantees and

promissory notes, the entity would recognize the guarantees at fair value in accordance with ASC 460

and recognize the promissory notes in accordance with ASC 835, ASC 470 and ASC 310.

As indicated in ASC 810-10-40-5, the gain/loss calculation is affected by the carrying amount of any

noncontrolling interest in the former subsidiary specified in ASC 810-10-40-3A. However, adjustments

to the carrying amount of a redeemable noncontrolling interest from the application of ASC 480-10-S99-

3A do not initially enter into the determination of net income (see Section 2.2.3 and 2.2.4 for additional

discussion of the application of ASC 480-10-S99-3A). For this reason, the SEC staff believes that the

carrying amount of the noncontrolling interest used in the gain/loss calculation similarly should not

include any adjustments made to that noncontrolling interest from the application of ASC 480-10-S99-

3A. Rather, previously recorded adjustments to the carrying amount of a noncontrolling interest from

the application of ASC 480-10-S99-3A should be eliminated in the same manner in which they were

initially recorded (that is, by recording a credit to equity of the parent).

Illustration 6-1:

Assume Company A has a 90% controlling interest in Company B, a public retailer of athletic wear. On

31 December 20X6, the carrying amount of Company B’s net assets is $100 million, and the carrying

amount attributable to the noncontrolling interest in Company B (including the noncontrolling

interest’s share of accumulated other comprehensive income) is $10 million. On 1 January 20X7,

Company A sells 70% of Company B to a third party for cash proceeds of $108 million. As a result of

the sale, Company A loses control of Company B but retains a 20% noncontrolling interest in

Company B. The fair value of the retained interest on that date is $24 million. 19

The gain on sale of the 70% interest in Company B is calculated as follows (in millions):

19 This number is assumed (and cannot be determined based on the acquisition of the 70% interest because that price includes a control premium).

http://asc.fasb.org/link&sourceid=SL6540609-122764&objid=6758505



Cash proceeds $ 108

Fair value of retained interest 24

Carrying amount of the nonredeemable noncontrolling interest 10

142

Less:

Carrying amount of Company B’s net assets 100

Gain $ 42

The journal entry to record Company B’s deconsolidation follows:

Cash $ 108

Investment in Company B 24

Noncontrolling interest 10

Net assets of Company B $ 100

Gain on sale 42

Company A subsequently may account for its retained interest as an available-for-sale or

trading security pursuant to ASC 320 (with a cost basis of $24).

If Company A’s retained 20% noncontrolling interest provided it with significant influence over

Company B and was to be accounted for as an equity method investment, Company A would be

required to identify and determine the acquisition date fair value of the underlying assets and liabilities

of the investee (with certain exceptions), pursuant to ASC 323. While Company A would not recognize

those identified assets and liabilities, it must track its bases in them (often through a process referred

to as ―memo‖ accounting) to account for the effect of any differences between its bases and the bases

recognized by the investee. Chapter 4 of our FRD, Equity method investments provides further

guidance on applying the equity method.

6.1.4 Measuring the fair value of consideration received and any retained noncontrolling investment

When determining the gain or loss upon deconsolidation, the fair value of any consideration received and

the fair value of any retained noncontrolling investment in the former subsidiary or groups of assets

must be determined. When the consideration received is cash or when the retained noncontrolling

investment in the former subsidiary or group of assets is a publicly traded equity interest, this

determination may be relatively straightforward. However, in other circumstances, the determination

may prove more challenging. The facts and circumstances of a deconsolidating event should be

evaluated carefully before recording a gain or loss. Consistent with the disclosure provisions included

within ASC 810-10-50-1B and discussed further in Chapter 9, we believe that it is appropriate to disclose

the details of the computation of any material gain or loss.

Consideration received may take many forms, including cash, tangible and intangible assets, financial

instruments and contingent consideration. Because ASC 810-10-40-5 indicates that the consideration

received is to be measured at fair value, we generally believe that it is appropriate to measure

consideration received at its fair value regardless of its form (see Section 6.1.4.1 below for further

discussion of contingent consideration). In evaluating the nature and amount of consideration received, it

may be helpful to consider the guidance in ASC 805 regarding consideration transferred. Refer to our

FRD, Business combinations, for further discussion of consideration transferred.

We believe the determination of the fair value of any consideration received should contemplate any off-



market executory contracts (e.g., leases). To illustrate, if upon deconsolidation, a favorable lease

contract (from the reporting entity’s perspective) exists between the reporting entity and its former

subsidiary, we believe that an intangible asset should be recorded by the reporting entity for the off-

market component of the lease contract. The effect of this accounting is to increase the gain (or reduce

the loss) recorded upon deconsolidation, as presumably the consideration received was reduced by the

favorable lease contract.

A retained noncontrolling investment may take many forms, including common stock investments,

preferred stock investments, and debt interests (see Section 6.1.4.2). We also generally believe that it is

appropriate to measure any noncontrolling investment at its fair value regardless of its form.

6.1.4.1 Accounting for contingent consideration in deconsolidation

In certain instances, a transfer of a controlling interest in a subsidiary involves contingent consideration.

For example, when an entity sells a controlling interest in a subsidiary, the acquirer may promise to

deliver cash, additional equity interests or other assets to the seller after the sale date if certain

specified events occur or conditions are met in the future. These contingencies frequently are based on

future earnings or changes in the market price of the subsidiary’s stock over specified periods after the

date of the sale; however, they might be based on other factors (e.g., components of earnings, product

development milestones, cash flow levels or the successful completion of third-party contract

negotiations).

The basis for recognition and measurement of contingent consideration in deconsolidation is not

addressed in ASC 810 and therefore it is necessary to look to other guidance. If contingent consideration

meets the definition of a derivative, it should be accounted for pursuant to ASC 815. When contingent

consideration does not meet the definition of a derivative, the ASC does not provide detailed guidance. In

this circumstance, we believe the basis for recognition and measurement of contingent consideration

receivable by the seller is an accounting policy choice that should be applied on a consistent basis.

Discussed below are two policy alternatives that are applied in practice.

Alternative 1: Fair value approach

ASC 810-10-40-5 requires that the measurement of any gain or loss on deconsolidation of a subsidiary

include the fair value of ―any consideration received.‖ We believe the reference to ―any consideration

received‖ in ASC 810-10-40-5 could be interpreted to include contingent consideration. Thus, we believe

that the seller may initially recognize an asset from the buyer equal to the fair value of any contingent

consideration received upon deconsolidation. We note that this view is consistent with ASC 805’s

requirement that an acquirer recognize contingent consideration obligations as of the acquisition date as

part of consideration transferred in exchange for an acquired business.

If a seller follows an accounting policy to initially recognize an asset equal to the fair value of the

contingent consideration, we believe the seller also must elect an accounting policy to subsequently

measure the contingent consideration under either of the following approaches:

a. Subsequent remeasurement at fair value by electing the fair value option provided in

ASC 825-10-25 (assuming the gain contingency is a financial instrument eligible for the fair

value option).

b. Recognize increases in the carrying value of the asset using the gain contingency guidance in

ASC 450-30 and recognize impairments based on the guidance in ASC 450-20-25-2.



Alternative 2: Loss recovery approach

We also believe it is reasonable to conclude that contingent consideration is not required to be measured

at fair value. In that circumstance, we believe it is acceptable to apply a loss recovery approach by

analogizing to the accounting for insurance recoveries on property and casualty losses.

Property and casualty losses are accounted for in accordance with ASC 605-40. Pursuant to that

guidance, when a nonmonetary asset (e.g., property or equipment) is involuntarily converted to a

monetary asset (e.g., receipt of insurance proceeds upon the occurrence of an insured event), the loss

on the derecognition of the nonmonetary asset must be recognized, even when an entity reinvests, or is

obligated to reinvest, the monetary assets in a replacement asset. Anticipated insurance proceeds up to

the amount of the loss recognized are called insurance recoveries and may be recognized when it is

probable20 that they will be received. Some or all of the anticipated insurance recoveries therefore may

be recognized. Specifically, anticipated insurance recoveries may be recognized at the lesser of the

amount of: a) the proceeds that are probable of receipt or b) the total loss recognized. Insurance

proceeds in excess of the amount of the loss recognized are subject to the gain contingency guidance in

ASC 450-30, and are not recognized until all contingencies related to the insurance claim are resolved.

When analogizing insurance recovery accounting to the initial recognition of contingent consideration in

deconsolidation, an entity would compare the fair value of the consideration received, excluding the

contingent consideration, to the carrying amount of the assets that are deconsolidated pursuant to

ASC 810. If the fair value of the consideration received, excluding the contingent consideration, is less

than the carrying amount of the deconsolidated assets, the initial measurement of the contingent

consideration asset would be limited to the difference between those amounts. That is, if it is probable

that contingent consideration will be received, an asset would be recognized and measured initially at the

lesser of the amount of probable future proceeds or the difference between the fair value of the

consideration received, excluding the contingent consideration, and the carrying amount of the

deconsolidated assets. Subsequent recognition and measurement would be based on the gain contingency

guidance in ASC 450-30-25-1 (i.e., a contingency that might result in a gain usually should not be

reflected in the financial statements because to do so might be to recognize revenue before its realization).

Any subsequent impairments would be recognized based on the guidance in ASC 450-20-25-2.

If the fair value of the consideration received, excluding the contingent consideration, is greater than the

carrying amount of the deconsolidated assets, no contingent consideration asset would be recognized

initially. Subsequent recognition and measurement of the contingent consideration would be based on

the gain contingency model pursuant to ASC 450-30 and any subsequent impairment would be

recognized based on the guidance in ASC 450-20-25-2.

Illustration 6-2 demonstrates these two alternatives.

Illustration 6-2

Assume Company A has a 100% controlling interest in Company B, a public retailer of athletic wear.

On 31 December 20X6, the carrying amount of Company B’s net assets is $150 million. On 1 January

20X7, Company A sells 100% of Company B to a third party for cash proceeds of $75 million and a

promise by the third party to deliver additional cash annually over the next five years, determined

based on a percentage of Company B’s annual earnings above an agreed upon target. The fair value

of the contingent consideration is determined to be $175 million on 1 January 20x7. Company A

determines it is probable that $225 million21 in total contingent consideration will be received over

the life of this arrangement.

20 The ASC master glossary defines probable as: ―the future event or events are likely to occur.‖ 21 This amount reflects the total cash that is probable of receipt under the terms of the arrangement, as determined using a

reasonable estimate of the earnings of Company B over the next five years. No discount factor or other fair value adjustments are applied in determining this amount.



Fair value approach

The gain on sale of the 100% interest in Company B is calculated as follows (in millions):

Cash proceeds $ 75

Fair value of the contingent consideration 175 250

Less:


Gain $ 100

The journal entry to record Company B’s deconsolidation follows:

Cash $ 75

Contingent consideration receivable 175


Gain on sale 100

If Company A applies the fair value accounting policy, we believe Company A also must elect an

accounting policy to subsequently measure the contingent consideration under either of the following

approaches:

(a) Subsequent remeasurement at fair value by electing the fair value option provided in

ASC 825-10-25

(b) Recognize increases in the carrying amount of the asset using the gain contingency guidance

in ASC 450-30 and recognize impairments based on the guidance in ASC 450-20-25-2.

Loss recovery approach

Company A would compare the fair value of the consideration received, excluding the contingent

consideration, to the carrying amount of the assets that are deconsolidated pursuant to ASC 810.

Cash proceeds $ 75

Less:


Difference $ (75)

Because the fair value of the consideration received, excluding the contingent consideration, is less

than the carrying amount of the deconsolidated assets, an asset would be recognized and measured

initially at the lesser of the amount of probable future proceeds or the difference between those

amounts.

In this example, the difference of $75 calculated above is less than the probable future proceeds of

$225. Therefore, the contingent consideration asset would be recognized and measured initially at

$75. In this way, no gain would be recognized when initially recording this transaction.

The journal entry to record Company B’s deconsolidation would be as follows:

Cash $ 75

Contingent consideration receivable 75


If Company A elects to apply this alternative, subsequent increases in the carrying amount of the asset

would be recognized using the gain contingency guidance in ASC 450-30-25-1 and any subsequent

impairments would be recognized based on the guidance in ASC 450-20-25-2.



6.1.4.2 Accounting for a retained creditor interest in deconsolidation

The FASB concluded that the loss of control and the related deconsolidation of a subsidiary or

derecognition of a group of assets specified in ASC 810-10-40-3A is a significant economic event that

changes the nature of the investment held in the subsidiary or group of assets. Upon deconsolidation, an

entity therefore is required to record any remaining noncontrolling investment in the subsidiary or a

group of assets specified in ASC 810-10-40-3A at fair value. Consistent with this approach, we believe

that a loan to the former subsidiary also should be measured at fair value at the deconsolidation date.

Thus, any difference between the carrying amount of the loan to the subsidiary and the fair value should

be included in the gain/loss calculation upon deconsolidation of the subsidiary.

6.1.5 Accounting for accumulated other comprehensive income in deconsolidation

As described in Chapter 3, accumulated other comprehensive income (AOCI) of a subsidiary or group of

assets specified in ASC 810-10-40-3A is attributed to both the controlling and noncontrolling interests.

As part of deconsolidation, the parent should derecognize any portion of AOCI attributable to the

noncontrolling interest as the underlying asset or liability of the subsidiary or group of assets specified in

ASC 810-10-40-3A that generated the AOCI is no longer recorded on the books of the parent. While

ASC 810 does not specify the treatment of the AOCI attributable to the parent, we believe that the

reversal of any AOCI attributable to the parent should be included in the gain or loss recognized on

deconsolidation. The basis for this conclusion is that the assets or liabilities of the former subsidiary or

group of assets specified in ASC 810-10-40-3A that generated the amounts in AOCI have been

derecognized upon the loss of control.

The fair value of any retained interest is its new carrying amount and, if that investment is accounted for

as an equity method investment, the former parent would be required to identify and determine the

acquisition date fair value of the underlying assets and liabilities of the investee (with certain exceptions),

pursuant to ASC 323. While the former parent would not recognize those identified assets and liabilities,

it must track its bases in them (often through a process referred to as ―memo‖ accounting) to account

for the effect of any differences between its bases and the bases recognized by the investee. (Chapter 4

of our FRD, Equity method investments provides further guidance on applying the equity method).

Because the investment, as well as the underlying assets and liabilities of an equity method investment,

is recognized with a new basis, no AOCI is recognized upon deconsolidation. However, subsequent

accounting for the investment (for example, pursuant to ASC 320) or the underlying assets and liabilities

(pursuant to ASC 323) may generate AOCI after deconsolidation.

6.1.6 Deconsolidation through multiple arrangements

As discussed in Chapter 4, changes in ownership interests while maintaining control generally are

accounted for as equity transactions, while a loss of control generally gives rise to the recognition of a

gain or loss (as discussed in this Chapter). The FASB recognized that, because of these accounting

differences, transactions might be structured to achieve a specific accounting result. Consequently,

ASC 810-10-40-6 provides the following considerations when determining whether multiple

arrangements or transactions should be considered a single transaction:

1. They are entered into at the same time or in contemplation of one another.

2. They form a single transaction designed to achieve an overall commercial effect.

3. The occurrence of one arrangement is dependent on the occurrence of at least one other arrangement.

4. One arrangement considered on its own is not economically justified but they are economically

justified when considered together. An example is when one disposal is priced below market,

compensated for by a subsequent disposal priced above market.



Assessing whether multiple transactions should be considered as a single transaction is a matter of facts

and circumstances requiring the use of professional judgment. Such a determination should be clearly

and contemporaneously documented.

6.1.7 Deconsolidation through a bankruptcy proceeding


Objectives

General

810-10-15-10a

1. A majority-owned entity shall not be consolidated if control does not rest with the majority

owner — for instance, if any of the following are present:

i. The subsidiary is in legal reorganization

ii. The subsidiary is in bankruptcy

iii. The subsidiary operates under foreign exchange restrictions, controls or other

governmentally imposed uncertainties so severe that they cast significant doubt on the

parent's ability to control the subsidiary.

The bankruptcy status of entities within a consolidated group may affect whether the entities continue to

be consolidated. Consolidation considerations include the status of the bankruptcy proceedings as well as

the facts and circumstances of the parent’s relationship with the subsidiary (that is, majority shareholder,

priority debt holder, single largest creditor). Generally, when a subsidiary enters into bankruptcy, the

parent does not maintain control over the substantive operations of the subsidiary as the rights and

responsibilities over the entity are held by the Bankruptcy Court. Additionally, consolidation of the

subsidiary by the parent often would be precluded if the parent and subsidiary were both in bankruptcy,

but the parent and subsidiary were not under the oversight of the same Bankruptcy Court. However, if

the parent and subsidiary are both in bankruptcy and the proceedings are both in the same Court, the

parent may conclude based on the status of the bankruptcy proceeding that the subsidiary should

continue to be consolidated.

Refer to our FRD, Bankruptcies and liquidations, for further discussion of the accounting considerations,

including additional discussion on consolidation and other accounting implications related to entities in,

or entering into, bankruptcy.

Question 6.1 ASC 810-10-40-3A is clear that a parent entity must consider ASC 360-20 for sales of in-substance

real estate. However, does ASC 360-20 also apply when a reporting entity loses control of an in-

substance real estate subsidiary through means other than a sale?

In ASU 2011-10, the FASB clarified that ASC 360-20 applies when a reporting entity loses control of

an in-substance real estate subsidiary as a result of a default by the subsidiary on its nonrecourse debt.

ASU 2011-10 is effective for public companies for fiscal years beginning on or after 15 June 2012

and interim periods within those fiscal years. For nonpublic companies, the consensus is effective for

fiscal years ending after 15 December 2013, and interim and annual periods thereafter. The standard is

to be applied prospectively and early adoption is permitted. The accounting in ASU 2011-10 is not

required for lenders.



However, the EITF did not address other scenarios in which a reporting entity loses a controlling financial

interest in an in-substance real estate subsidiary through means other than sale. For those transactions,

we believe a reporting entity generally should consider the real estate sales guidance or other real estate

literature (e.g., ASC 970-323) prior to removing the real estate from its statement of financial position.

We believe that the real estate literature provides relevant considerations for evaluating whether it is

appropriate to derecognize real estate in the statement of financial position. Refer to our FRD, Real

estate sales, for further interpretive guidance.

6.1.8 Gain/loss classification and presentation

ASC 810-10-40-5 does not provide guidance on the classification of the gain/loss on deconsolidation in

the income statement.

We believe a gain/loss on deconsolidation of a subsidiary would in many cases be most appropriately

presented as part of non-operating income because, in most cases, the deconsolidation will not be a part

of an entity’s primary revenue- and expense-generating activities. Before the issuance of Statement 160,

the SEC staff’s view articulated in SAB Topic 5-H was that ―gains (or losses) arising from issuances by a

subsidiary of its own stock, if recorded in income by the parent, should be presented as a separate line

item in the consolidated income statement without regard to materiality and clearly be designated as

non-operating income.‖ While SAB Topic 5-H was removed after the issuance of Statement 160 and

addressed a circumstance in which a gain or loss may have been recognized while control was maintained

(which is no longer acceptable after the adoption of Statement 160), and the decrease in the parent’s

ownership percentage was due to the direct issuance of unissued shares by a consolidated subsidiary, we

believe its guidance on the classification of resulting gains or losses is consistent with the notion that

these transactions are generally not an entity’s primary revenue- and expense-generating activity.

We believe an entity should clearly disclose the income statement classification of significant gains or

losses resulting from deconsolidation of a subsidiary. Entities should carefully evaluate the nature of the

deconsolidation to appropriately determine the proper classification and presentation of related gain/loss

and should consistently apply that evaluation. For example, it would not be appropriate to classify gains

in operating income and losses in non-operating income for similar transactions.

Note that if a gain or loss is recognized from a deconsolidation that relates to a discontinued operation,

that gain or loss should be included and presented as part of the income (loss) from discontinued

operations.

6.1.9 Subsequent accounting for retained noncontrolling investment

After the subsidiary or group of assets specified in ASC 810-10-40-3A is deconsolidated or

derecognized, any retained ownership interest is initially recognized at fair value (see Section 6.1 for

further discussion of this accounting). After initial recognition, the retained ownership interest is subject

to other existing accounting literature, as appropriate.

If the former parent exercises significant influence over the investee, as defined in ASC 323-10-15-6

through 15-8, then the investment should be accounted for under the equity method. The former parent

would be required to identify and determine the acquisition date fair value of the underlying assets and

liabilities of the investee (with certain exceptions), pursuant to ASC 323. While the former parent would

not recognize those identified assets and liabilities, it must track its bases in them (often through a

process referred to as ―memo‖ accounting) to account for the effect of any differences between its bases

and the bases recognized by the investee. Chapter 4 of our FRD, Equity method investments provides

further guidance on applying the equity method.



If it is determined that the investor is not able to exercise significant influence over the investee, the

investment is accounted for as an equity security, generally in accordance with ASC 320 or at cost,

as appropriate.


Illustration 6-3

The comprehensive example in this chapter describing the accounting for a loss of control continues

from the comprehensive example presented in Chapter 4. In that example, Company P acquired a

controlling financial interest in Company S, a distributor of video games qualifying as a business

pursuant to ASC 805, as of 1 January 20X1. As of 31 December 20X3, Company P owned 60% of

Company S.

For reference, Figure 6-1 presents the consolidating work paper to arrive at the consolidated balance

sheet of Company P as of 31 December 20X3. This consolidating work paper is taken from Figure 4-

11 in Illustration 4-14 of Chapter 4.



Company P

Company S

Adjustments

Consolidated Debit (1) Credit (1)

Cash 80,700 3,000 83,700


Inventory — 30,000 30,000

Buildings and equipment, net — 42,000 17,850 59,850

Investment in Company S 42,890 — 42,890 —

Goodwill — — 4,286 4,286

Total assets 123,590 92,500 195,336


Debt 27,000 — 27,000


Common stock 1,500 30,000 30,000 1,500

Additional paid-in capital 34,500 — 28,753 9,693 15,440


3,350

5,500

6,550

1,000 3,300

Retained earnings (deficit) 57,240 (18,000) 18,000 57,240


Noncontrolling interest — — 15,856 15,856

Total equity 96,590 17,500 93,336


(1) The adjustments reflected here are described in notes (70)-(72) and (76)-(81) in Figure 4-11 of

Chapter 4. Consistent with the comprehensive example in Chapter 4, the adjustments column

includes adjustments to revalue Subsidiary S’s assets and liabilities at acquisition (i.e., as of 1

January 20X1) as well as subsequent adjustments to those amounts (e.g., depreciation of

buildings and equipment). These amounts have not been pushed down to the separate financial

statements of Subsidiary S in the example (see Appendix A for a comprehensive example in which

these adjustments have been pushed down to the subsidiary’s financial statements).



6.2.1 Deconsolidation by selling entire interest

Illustration 6-4

Assume on 1 January 20X4, Company P sells its remaining 60% interest in Company S for $60,000 of

cash and repays its outstanding debt.

Company P no longer has a controlling financial interest in the subsidiary through the sale of its entire

interest in Company S. Once control is lost, a parent deconsolidates the subsidiary or derecognizes a

group of assets specified in ASC 810-10-40-3A, and a gain or loss should be recognized based on the

difference between:

(1) The aggregate of the fair value of consideration received, the fair value of any retained

noncontrolling interest in the former subsidiary or group of assets at the date the subsidiary

is deconsolidated or the group of assets is derecognized, and the carrying amount of any

noncontrolling interest in the former subsidiary (including any accumulated other comprehensive

income attributable to the noncontrolling interest) at the date the subsidiary is deconsolidated, and

(2) The carrying amount of the former subsidiary’s assets and liabilities or the carrying amount of the

group of assets.

Company P’s gain is calculated as follows:

Cash proceeds $ 60,000

Carrying amount of the noncontrolling interest 15,856

AOCI attributable to Company P 3,300

79,156

Carrying amount of Company S’s net assets (39,636)

Gain $ 39,520

On a consolidated basis, Company S’s assets, liabilities and noncontrolling interest should be

derecognized, and the cash proceeds and gain should be recognized through the following journal

entry:

Cash $ 60,000

Noncontrolling interest 15,856

Accounts payable 75,000

AOCI 3,300

Cash $ 3,000

Marketable securities 17,500

Inventory 30,000

Buildings and equipment, net 59,850

Goodwill 4,286

Gain on sale of investment 39,520

Alternatively, on a parent-only basis, the investment in Company S and accumulated other

comprehensive income are derecognized, and the gain and cash proceeds are recognized. In addition,

the adjustments to additional paid-in capital made while Company S was consolidated would be

recognized on the parent’s books and are derived from the example in Chapter 4.



Cash $ 60,000


AOCI 3,350

Investment in Company S $ 42,890


Figure 6-2 presents Company P’s balance sheet at 1 January 20X4, after the sale of Company S.

Figure 6-2: Company P balance sheet, 1 January 20X4, entire interest sold (all amounts in

dollars)

Company P

Cash (1) 113,700

Total assets 113,700

Common stock 1,500

Additional paid-in capital (3) 15,440

Accumulated other comprehensive income (2) —

Retained earnings (4) 96,760

Total parent shareholders’ equity 113,700

Noncontrolling interest —

Total equity 113,700

(1) Cash is rolled forward as follows:


Proceeds from sale 60,000

Repayment of debt (27,000)


(2) The investment, debt and accumulated other comprehensive income are zero after the sale of

Company S and the repayment of Company P’s debt.

(3) Additional paid-in capital was reduced to reflect the adjustments made during consolidation

relating to the purchase/sale of interests in Company S while control was maintained (accounted

for as equity transactions).

(4) The rollforward of the retained earnings balance is as follows:


Gain from sale of investment 39,520




6.2.2 Deconsolidation by selling a partial interest

Illustration 6-5

Assume that instead of selling its entire interest in Company S on 1 January 20X4, Company P sells a

30% interest in Company S (leaving Company P with a remaining 30% interest) for $24,000 cash. The

fair value of the remaining 30% interest is also $24,000. Company P uses the proceeds to extinguish

its outstanding debt.

In this example, Company P’s investment in Company S is recognized at fair value and is reflected as

part of the sales proceeds.

Company P’s gain is calculated as follows:

Proceeds $ 24,000

Fair value of retained noncontrolling interest 24,000

Carrying value of noncontrolling interest 15,856

AOCI attributable to Company P 3,300

67,156

Carrying amount of Company S’s net assets (39,636)

Gain $ 27,520


derecognized, and the cash proceeds, gain and retained interest in Company S should be recognized

through the following journal entry:

Cash $ 24,000



AOCI 3,300

Investment in Company S 24,000

Cash $ 3,000

Accounts receivable 17,500

Inventory 30,000


Goodwill 4,286


Alternatively, on a parent-only basis, the investment in Company S is reduced to $24,000, the

accumulated other comprehensive income balance is derecognized, and the gain and cash proceeds

are recognized. In addition, the adjustments to paid-in capital made while Company S was consolidated

would be recognized on the parent’s books and are derived from the example in Chapter 4.

Cash $ 24,000


AOCI 3,350

Investment in Company S $ 18,890




Figure 6-3 presents Company P’s balance sheet at 1 January 20X4, reflecting the sale of Company S.

Figure 6-3 Company P balance sheet, 1 January 20X4, partial interest sold (all amounts in

dollars)

Company P

Cash (5) 77,700

Investment in Company S (6) 24,000

Total assets 101,700

Common stock 1,500

Paid-in capital (8) 15,440

Accumulated other comprehensive income (7) —

Retained earnings (9) 84,760

Total parent shareholders’ equity 101,700

Noncontrolling interest —

Total equity 101,700

Total liabilities and equity 101,700

(5) The rollforward of cash is as follows:


Proceeds from sale 24,000

Repayment of debt (27,000)


(6) The investment in Company S account was adjusted to equal the fair value of the retained interest

in Company S at the date of deconsolidation ($24,000).

(7) The debt and accumulated other comprehensive income are zero after the sale of Company S and

the repayment of Company P’s debt.

(8) Additional paid-in capital was reduced to reflect the adjustments made during consolidation

relating to the purchase/sale of interests in Company S while control was maintained (accounted

for as equity transactions).

(9) The rollforward of retained earnings is as follows:


Gain from sale of investment 27,520



7 Combined financial statements

7.1 Purpose of and procedures for combined financial statements


Implementation Guidance and Illustrations

Combined Financial Statements

810-10-55-1B

To justify the preparation of consolidated financial statements, the controlling financial interest shall

rest directly or indirectly in one of the entities included in the consolidation. There are circumstances,

however, in which combined financial statements (as distinguished from consolidated financial

statements) of commonly controlled entities are likely to be more meaningful than their separate

financial statements. For example, combined financial statements would be useful if one individual

owns a controlling financial interest in several entities that are related in their operations. Combined

financial statements might also be used to present the financial position and results of operations of

entities under common management.


810-10-45-10

If combined financial statements are prepared for a group of related entities, such as a group of

commonly controlled entities, intra-entity transactions and profits or losses shall be eliminated, and

noncontrolling interests, foreign operations, different fiscal periods, or income taxes shall be treated in

the same manner as in consolidated financial statements.

Control is the primary basis for presentation of consolidated financial statements. There are, however,

certain circumstances when the presentation of financial statements of individual entities is not as

meaningful as the presentation of combined financial statements for related entities. ASC 810 states

that combined financial statements may be useful to present related entities under common control or

related entities with common management, though there are no conditions specified under which combined

financial statements would be required. Combined financial statements are most frequently presented for

filings in accordance with various statutory or regulatory requirements.

The fundamental difference between combined and consolidated financial statements is that there is no

controlling financial interest present between or among the combined entities under either the variable

interest or voting interest models.

7.1.1 Common management

We believe that the determination of whether entities are under common management is a determination

to be made based on individual facts and circumstances. To justify combined presentation, we would

expect evidence to exist that indicates that the subsidiaries are not operated as if they were autonomous.

This evidence could include:

• A common CEO

• Common facilities and costs

7 Combined financial statements


• Commitments, guarantees or contingent liabilities among the entities

• Commonly financed activities

This list is not all-inclusive, and there could be other factors relevant to the determination of whether or

not subsidiaries are under common management.

The following illustration demonstrates these concepts.

Illustration 7-1: Presenting combined versus consolidated financial statements

Facts

Assume that Company S has 2,000 common shares and 1,000 preferred shares outstanding. The

preferred shareholders have the same rights as the common shareholders, except the right to vote. Of

the 2,000 common shares outstanding, 1,000 shares are owned by Company P, and 1,000 shares are

owned by an individual who also owns all of the outstanding common shares of Company P. The

preferred shares of Company S are owned by a third party.

Analysis

In this situation, Company P does not control Company S directly or indirectly, and, therefore,

consolidation under either the variable interest or voting interest models in ASC 810 is not

appropriate. Combined financial statements could be presented as long as the circumstances are such

that combined financial statements of Company S and Company P are more meaningful than

presenting Company S’s separate financial statements.

7.1.2 Procedures applied in combining entities for financial reporting

The procedures applied to combining entities are the same as those applied when preparing consolidated

financial statements. All transactions between the entities in the combined presentation and the related

profit and loss must be eliminated. In addition, the accounting in combined financial statements for

noncontrolling interests, foreign operations, different fiscal periods and income taxes is the same as that

used in consolidated financial statements.

The reference to noncontrolling interests in ASC 810-10-45-10 relates to the noncontrolling interests in

each of the combining entities’ subsidiaries as reflected in the individual combining entities’ financial

statements. We believe interests held by parties outside of the control group in each of the respective

combining entities themselves would not constitute noncontrolling interests in the combined financial

statements. The fundamental difference between combined and consolidated financial statements is that

there is no direct controlling financial interest present between or among the combined entities.

Therefore, we believe equity holdings in each of the combining entities regardless of who holds such

equity (that is, whether they are held by parties outside of the control group or not) should be reflected

as ownership interests in the combined financial statements.

Illustration 7-2: Noncontrolling interests in combined financial statements

Assume Company P consolidates less-than-wholly-owned Subsidiaries A, B and C. If combined financial

statements were to be prepared for Subsidiaries A and B, interests held by parties other than

Company P in Subsidiaries A and B would not constitute noncontrolling interests in the combined

financial statements. Only the noncontrolling interests that would be reflected in Subsidiaries A and

B’s individual financial statements, if any, would be reflected as such in the combined financial

statements. For example, if Subsidiary A has an 80%-owned subsidiary (Subsidiary A1), the 20%

noncontrolling interest held by a third party in Subsidiary A1 would be reflected as noncontrolling

interest in the combined financial statements.


8 Parent-company financial statements

8.1 Purpose of and procedures for parent-company financial statements



Parent Entity Financial Statements

810-10-45-11

In some cases parent-entity financial statements may be needed, in addition to consolidated financial

statements, to indicate adequately the position of bondholders and other creditors or preferred

shareholders of the parent. Consolidating financial statements, in which one column is used for the

parent and other columns for particular subsidiaries or groups of subsidiaries, often are an effective

means of presenting the pertinent information. However, consolidated financial statements are the

general-purpose financial statements of a parent having one or more subsidiaries; thus, parent-entity

financial statements are not a valid substitute for consolidated financial statements.

ASC 810 permits the presentation of parent-company financial statements but clarifies that such

financial statements may not be issued as the primary financial statements of the reporting entity and

are not a valid substitute for consolidated financial statements.

Certain SEC registrants must present condensed parent-company financial information pursuant to

Regulation S-X, Rule 12-04, Condensed Financial Information of Registrant, in Schedule I of their Form

10-K. This schedule is required whenever restricted net assets of consolidated subsidiaries exceed 25%

of consolidated net assets at the end of the fiscal year. Registrants are required to present information

required by Rule 12-04 as a separate schedule or in the notes to the financial statements. Our

publication, SEC annual reports, provides additional guidance for applying these quantitative tests and

summarizes the related disclosure requirements.

Not-for-profit entities22 such as health care providers also occasionally prepare parent-company financial

statements. Consolidation with respect to not-for-profit entities is addressed in ASC 958.

8.1.1 Investments in subsidiaries

Parent-company financial statements generally present the parent company’s investment in consolidated

subsidiaries under the equity method in accordance with ASC 323. Under ASC 805 and ASC 810,

additional investment activity in consolidated subsidiaries that does not result in a change in control is

accounted for as an equity transaction. Importantly, because ASC 323 uses step-acquisition accounting,

22 ASC 810-10-20 defines a not-for-profit entity as ―(a)n entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: (a) contributions of significant amounts of resources from resource providers who do not

expect commensurate or proportionate pecuniary return, (b) operating purposes other than to provide goods or services at a profit, (c) absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following: (a) all investor-owned entities and (b) entities that provide dividends, lower costs or other economic benefits directly

and proportionately to their owners, members or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives and employee benefit plans.―

8 Parent-company financial statements


basis differences may exist between the application of the equity method and the parent’s proportion of

the subsidiary’s equity. While it is not specifically addressed by the accounting literature, we believe that

parents that determine the value of their equity method investments in parent-company financial

statements at an amount equal to the value of its controlling interest should continue this practice.

Otherwise, the equity and earnings of the parent company in the parent-company financial statements

may differ from the corresponding amounts in the consolidated financial statements.

8.1.2 Investments in non-controlled entities

Investments accounted for at cost or under the equity method in consolidated financial statements

should follow that same basis in the parent-company financial statements. Moreover, their carrying

amounts should generally be the same between the parent-company financial statements and the


8.1.3 Disclosure requirements

When parent-company financial statements are presented as other than the primary financial statements

of the reporting entity, the notes to the financial statements should include a statement to that effect. In

addition, the accounting policy note should describe the policy used to account for investments in

subsidiaries. The following is an example of such a note.

Illustration 8-1: Noncontrolling interests in combined financial statements

Note A — Accounting Policies

Basis of Presentation. In the parent-company financial statements, the Company’s investment in

subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of

acquisition. The Company’s share of net income of its unconsolidated subsidiaries is included in

consolidated income using the equity method. Parent-company financial statements should be read in

conjunction with the Company’s consolidated financial statements.


9 Presentation and disclosures

9.1 Certain presentation and disclosure requirements related to consolidation


Disclosure

Consolidation Policy

810-10-50-1

Consolidated financial statements shall disclose the consolidation policy that is being followed. In most

cases this can be made apparent by the headings or other information in the financial statements, but

in other cases a footnote is required.

Parent with a Less-than-Wholly-Owned Subsidiary

810-10-50-1A

A parent with one or more less-than-wholly-owned subsidiaries shall disclose all of the following for

each reporting period:

a. Separately, on the face of the consolidated financial statements, both of the following:

1. The amounts of consolidated net income and consolidated comprehensive income

2. The related amounts of each attributable to the parent and the noncontrolling interest.

b. Either in the notes or on the face of the consolidated income statement, amounts attributable to

the parent for any of the following, if reported in the consolidated financial statements:

1. Income from continuing operations

2. Discontinued operations

3. Extraordinary items.

c. Either in the consolidated statement of changes in equity, if presented, or in the notes to

consolidated financial statements, a reconciliation at the beginning and the end of the period of

the carrying amount of total equity (net assets), equity (net assets) attributable to the parent, and

equity (net assets) attributable to the noncontrolling interest. That reconciliation shall separately

disclose all of the following:

1. Net income

2. Transactions with owners acting in their capacity as owners, showing separately

contributions from and distributions to owners

3. Each component of other comprehensive income.

d. In notes to the consolidated financial statements, a separate schedule that shows the effects of any

changes in a parent’s ownership interest in a subsidiary on the equity attributable to the parent.




810-10-50-1B

In the period that either a subsidiary is deconsolidated or a group of assets is derecognized in

accordance with paragraph 810-10-40-3A, the parent shall disclose all of the following:

a. The amount of any gain or loss recognized in accordance with paragraph 810-10-40-5

b. The portion of any gain or loss related to the remeasurement of any retained investment in the

former subsidiary or group of assets to its fair value

c. The caption in the income statement in which the gain or loss is recognized unless separately

presented on the face of the income statement

d. A description of the valuation technique(s) used to measure the fair value of any direct or indirect

retained investment in the former subsidiary or group of assets

e. Information that enables users of the parent’s financial statements to assess the inputs used to

develop the fair value in item (d)

f. The nature of continuing involvement with the subsidiary or entity acquiring the group of assets

after it has been deconsolidated or derecognized

g. Whether the transaction that resulted in the deconsolidation or derecognition was with a related

party

h. Whether the former subsidiary or entity acquiring a group of assets will be a related party after

deconsolidation.

9.1.1 Consolidated statement of comprehensive income presentation

ASC 810 requires that consolidated net income and consolidated comprehensive income of the

consolidated entity include the revenues, expenses, gains and losses from both the parent and the

noncontrolling interest. The FASB believes that consolidated financial statements are more relevant if

the user is able to distinguish between amounts attributable to both the owners of the parent company

and the noncontrolling interest. For the user to make that determination, the amounts of consolidated

net income and consolidated comprehensive income allocable to both the parent’s owners and the

noncontrolling interest should be presented on the face of the financial statements. In addition, the

amounts attributable to the parent for income from continuing operations, discontinued operations and

extraordinary items should be disclosed either on the face of the income statement or in the notes to the

consolidated financial statements. Earnings per share will continue to be calculated based on

consolidated net income allocable to the parent’s owners.

9.1.2 Reconciliation of equity presentation

ASC 810 also requires a reconciliation of the carrying amount of total equity from the beginning of the

period to the end of the period. This reconciliation includes total equity, equity allocable to the parent

and equity allocable to the noncontrolling interest. It should separately disclose net income, transactions

with owners acting in their capacity as owners (showing separately contributions from and distributions

to owners) and each component of other comprehensive income. For SEC registrants, this requirement is

satisfied with the inclusion of equity allocable to the noncontrolling interest in the statement of changes

in equity. Entities not registered with the SEC are not required to include a statement of changes in

equity; therefore, the disclosure requirements related to this reconciliation can be satisfied by the

inclusion of a statement of changes in equity or with the inclusion of the required information in the



notes to the consolidated financial statements. In addition to the reconciliation of the carrying amount of

equity, the effect of any changes in the parent’s ownership interest in a subsidiary on equity allocable to

the parent should be disclosed in the notes to the consolidated financial statements.

9.1.2.1 Presentation of redeemable noncontrolling interests in equity reconciliation

The SEC staff has indicated that registrants with redeemable noncontrolling interests (that is, mezzanine

equity) should not include these items in any caption titled ―total equity‖ in the reconciliation of equity

required under ASC 810-10-50-1A(c).

ASC 810-10-50-1A(c) and the SEC’s technical amendments to Regulation S-X Rule 3-04 require

registrants to reconcile total equity at the beginning of the period to total equity at the end of the period.

ASC 480-10-S99-3A specifies that securities that are redeemable at the option of the holder or outside

the control of the issuer are to be presented outside permanent equity (in the ―mezzanine‖ section of the

statement of financial position) and prohibits such instruments from being included in any caption titled

―total equity.‖

The SEC staff has identified two potentially acceptable means of presentation to satisfy the requirements

of both ASC 480-10-S99-3A and ASC 810-10-50-1A(c):

• Provide a column for redeemable noncontrolling interests in the equity reconciliation but exclude the

related amounts from any ―total‖ column. For example, this column could be presented separately to

the right of the column reconciling total equity. In that case, the reconciliation could include a row for

net income or a supplemental table identifying the allocation of net income among controlling

interests, noncontrolling interests and redeemable noncontrolling interests.

• Exclude redeemable noncontrolling interests from the equity reconciliation but provide a

supplemental table, reconciling the beginning and ending balance of redeemable noncontrolling

interests. The supplemental table may be in either the notes to the financial statements or the

―statement of changes in equity and noncontrolling interests.‖ In this case, the caption ―net income‖

in the equity reconciliation could note parenthetically the amount related to redeemable

noncontrolling interests.

The SEC staff acknowledged that other means of presenting the reconciliation of total equity may be

acceptable and that the appropriateness of such presentation would be evaluated based on the specific

facts and circumstances.

9.1.2.2 Interim reporting period requirements

ASC 810-10-50-1A(c) ’s introduction indicates that ―a parent with one or more less-than-wholly-owned

subsidiaries shall disclose … for each reporting period (emphasis added)…‖ Thus, this provision requires

that the equity reconciliation be provided for interim reporting periods. Some reporting entities may

choose to present this reconciliation in the form of a consolidated statement of changes in equity. If a

consolidated statement of changes in equity is not presented on an interim basis, a reporting entity must

provide the disclosure in the notes to the consolidated financial statements.

We believe that the reconciliation of the carrying amount of total equity (net assets), equity (net assets)

attributable to the parent and equity (net assets) attributable to the noncontrolling interest should be

presented on a year-to-date basis. This approach is consistent with the presentation requirements for the

statement of cash flows, which provides information about the activity of balance sheet amounts (that is,

cash and cash equivalents) between periods.

However, it would also be acceptable for a registrant to provide a reconciliation of the relevant equity

amounts on a quarter-to-date basis in addition to the year-to-date disclosures.



9.1.3 Consolidated statement of financial position presentation

Although ASC 810 does not explicitly require that a subtotal for ―total parent shareholders’ equity‖ be

presented on the face of the statement of financial position, we believe that, based upon the example in

ASC 810-10-55-41, such presentation should be made. ASC 810-10-50-1A(c) requires that an entity

disclose a reconciliation at the beginning and the end of the period of the carrying amount of equity

attributable to the parent, either in the consolidated statement of changes in equity, if presented, or in

the notes to the consolidated financial statements. The illustrative example in ASC 810-10-55-41

presents a subtotal for the total parent shareholders’ equity. Therefore, we believe that an entity should

present a subtotal for the total parent shareholders’ equity on the face of the statement of financial

position separately from noncontrolling interest and before arriving at total equity.

9.1.4 Consolidated statement of cash flows presentation

ASC 810 does not affect statement of cash flow presentation and therefore entities with noncontrolling

interests should continue to look to ASC 230 for guidance. ASC 230 requires entities to provide a

reconciliation of net income to net cash flows from operating activities regardless of whether the direct

or indirect method is used for presenting net cash flows from operating activities. Therefore, entities

should start with net income in their statement of cash flow presentation when applying the indirect

method rather than net income attributable to the parent. Illustration 9-1 provides an example of this

presentation.

Illustration 9-1: Starting point for indirect method

For Company A, assume for the years ended 31 December 20x9 and 20x8:

Net income was $1,200 and $1,000, respectively

Net income attributable to the noncontrolling interests was $240 and $200, respectively

Net income attributable to the Parent was $960 and $800, respectively

In preparing the statement of cash flows under the indirect method, Company A would begin with net

income inclusive of income attributable to the noncontrolling interests. Therefore, Company A would

begin with net income amounts of $1,200 and $1,000 for the years ended 31 December 20x9 and

20x8, respectively.

While ASC 230 does not provide specific guidance on the statement of cash flow presentation for

transactions with noncontrolling interest holders (e.g., dividends and purchases/sales of noncontrolling

interest while control is maintained), ASC 230-10-45-14 and 45-15 state that ―proceeds from issuing

equity instruments‖ and ―payment of dividends and other distributions to owners, including outlays to

reacquire the enterprise’s equity instruments‖ are financing activities. We believe that transactions with

noncontrolling interest holders, while control is maintained, should generally be reported as financing

activities in the statement of cash flows. This view is consistent with the economic entity concept that all

residual economic interest holders have an equity interest in the consolidated entity, even if the residual

interest is relative to a subsidiary, and ASC 810’s requirement to present noncontrolling interests in the

consolidated statement of financial position as a separate component of equity. Further, this view is

consistent with the requirement for changes in a parent’s ownership interest in a subsidiary meeting the

scope of ASC 810-10-45-21A while the parent retains a controlling financial interest to be accounted for

as equity transactions.



9.1.4.1 Presentation of transaction costs in statement of cash flow

As discussed in 4.1.5, companies will have to make a policy election concerning whether to reflect

transaction costs associated with purchases and sales of noncontrolling interests as an expense in the

consolidated statement of income or as a direct charge to equity. We believe the most appropriate

classification of transaction costs in the consolidated statement of cash flows would be consistent with

that accounting. Accordingly, if transaction costs are reflected as an expense, we believe the related

cash flows would be most appropriately reflected as an operating activity. Alternatively, if the

transaction costs are reflected as a direct charge to equity, we believe the related cash flows would be

most appropriately classified as a financing activity.

9.1.5 Disclosure

ASC 810 also required disclosure of any gain/loss recognized on the deconsolidation of a subsidiary or

derecognition of a group of assets. The amount of any gain/loss and the classification of the gain/loss in

the income statement (see 6.1.10) are disclosed in the notes to the consolidated financial statements

along with the amount of the gain/loss related to the remeasurement of any retained interest in the

deconsolidated subsidiary or group of assets.

ASC 810 requires disclosure of a description of the valuation technique(s) used to measure the fair value

of any direct or indirect retained investment in a deconsolidated subsidiary or group of assets (e.g., a

discounted cash flow approach). Disclosure is also required of the information that enables users of the

parent’s financial statements to assess the inputs used to develop the fair value measurements used to

measure the retained interest in the former subsidiary or group of assets.

For example, for a discounted cash flow approach, disclosures may include information on discount rates

and the assumed capital structure, capitalization rates for terminal cash flows, assumptions about

expected growth in revenues, expected profit margins, expected capital expenditures, expected

depreciation and amortization, expected working capital requirements and other assumptions that may

have a significant effect on the valuation, such as discounts for lack of marketability or lack of control, as

applicable. For a market approach, disclosures may include information on the valuation multiples used in

the analysis, a description of the population of the guideline companies or similar transactions from

which the multiples were derived, the timeliness of the market data used, the method by which the

multiples were selected (e.g., use of the median, use of an average, the extent to which the financial

performance of the subject company was compared to the relative performance of the guideline

companies), discounts for lack of marketability and lack of control, as applicable. An entity also is

required to disclose the valuation techniques used to measure an equity interest in an acquiree held by

the entity immediately before the acquisition date in a business combination achieved in stages.

Furthermore, disclosure must be provided about the nature of continuing involvement with the

subsidiary or entity acquiring the group of assets after it has been deconsolidated and whether a related

party relationship exists. This disclosure is intended to highlight circumstances in which a gain or loss is

recognized, but the continuing relationship may affect the ultimate amounts realized from the sale and

resulting relationship.




Illustration 9-2: Presentation and disclosure example

To illustrate ASC 810’s presentation and quantitative disclosure requirements, following are the

financial statements and selected notes for Company P, which are based on the comprehensive

example illustrated in Chapters 4 and 6. Note that the qualitative disclosure requirements of ASC 810-

10-50-1B(d)-(h) are not included in the following comprehensive example. Further, the quantitative

disclosures required by ASC 810-10-50-1A(c) are reflected in the consolidated statement of changes

in equity in the example below. Alternatively, these may also be reflected in the notes to the


Company P

Consolidated Statement of Financial Position


31 December,

20X3 20X2

Assets:

Cash 83,700 39,600

Marketable securities 17,500 15,500

Inventory 30,000 30,000


Goodwill 4,286 4,286

Total assets 195,336 157,786

Liabilities:


Debt 27,000 27,000

Total liabilities 102,000 102,000

Equity:

Company P shareholders’ equity:

Common stock 1,500 1,500

Additional paid-in capital 15,440 5,747

Accumulated other comprehensive income 3,300 3,150

Retained earnings 57,240 40,770

Total Company P shareholders’ equity 77,480 51,167

Noncontrolling interest 15,856 4,619

Total equity 93,336 55,786

Total liabilities and equity 195,336 157,786

In the consolidated statement of financial position, Company P separately identifies Company P’s

shareholders’ equity and the noncontrolling interest.

Consolidated net income is attributed to the controlling and noncontrolling interests.



Company P

Consolidated Statement of Income

(all amounts in dollars, except share amounts)

Year Ended 31 December,

20X3 20X2 20X1

Revenues 96,000 96,000 96,000

Cost of revenues 42,000 42,000 46,500

Gross profit 54,000 54,000 49,500


Consolidated net income 27,450 27,450 22,950

Less: Net income attributable to noncontrolling interest 10,980 2,745 6,885

Net income attributable to Company P 16,470 24,705 16,065

Earnings per share — basic and diluted:

Net income attributable to Company P common shareholders 10.98 16.47 10.71

Weighted-average shares outstanding 1,500 1,500 1,500

Company P

Consolidated Statement of Comprehensive income

(all amounts of dollars)

Year Ended 31 December,

20X3 20X2 20X1

Net income 27,450 27,450 22,950

Other comprehensive income and reclassification adjustments:

Unrealized holding gain (loss) on available-for-sale securities and reclassification adjustments 2,000 (1,500) 5,000

Total other comprehensive income and reclassification adjustments 2,000 (1,500) 5,000

Comprehensive income 29,450 25,950 27,950

Less: Comprehensive income attributable to noncontrolling interest 11,780 2,595 8,385

Comprehensive income attributable to Company P 17,670 23,355 19,565

The consolidated statement of changes in equity includes an additional column representing the

changes in noncontrolling interest.



Company P also discloses the effects of changes in Company P’s ownership interest in its subsidiary on

Company P’s equity. This schedule would be presented as a note in the company’s financial statements, as

follows.

Company P

Notes to Consolidated Financial Statements

Years Ended 31 December, 20X3, 20X2, 20X1


Net Income Attributable to Company P and Transfers (to) from the Noncontrolling Interest

20X3 20X2 20X1

Net income attributable to Company P 16,470 24,705 16,065

Transfers (to) from the noncontrolling interest

Increase in Company P’s paid-in capital for sale of 9,000 Company S common shares 9,693 — —

Decrease in Company P’s paid-in capital for purchase of 6,000 Company S common shares — (28,753) —

Net transfers (to) from noncontrolling interest 9,693 (28,753) —

Change from net income attributable to Company P and transfers (to) from noncontrolling interest 26,163 (4,048) 16,065

Financial reporting developments Consolidated and other financial statements A-1

A Comprehensive example

This appendix provides a comprehensive example of the concepts described in this publication:

1. Control resulting from an increase in ownership interest

2. Changes in a parent’s ownership interest while the parent maintains control of the subsidiary

meeting the scope of ASC 810-10-45-21A

3. The elimination of intercompany transactions

4. Deconsolidation of subsidiary

Work paper consolidating entries are numbered sequentially. While there are different ways to apply

consolidation procedures, this comprehensive example illustrates consolidation based on push-down

accounting to the subsidiary which is a retailer of luxury handbags qualifying as a business pursuant to

ASC 805. The use of push-down accounting is the primary difference between this example and the

comprehensive examples in Chapters 4, 5 and 6. Those examples cover the same concepts, but

attribute the purchase price in consolidation.

Illustration A-1: Year 20X2

Assumptions:

1. As of 31 December 20X1, Company P (P) owns 40% of Company S (S), which is a retailer of luxury

handbags and a voting interest entity, with net assets of $650,000. The carrying amount of

Company P’s 40% investment in Company S is $260,000.

2. P purchases an additional 40% of the common stock of S on 1 January 20X2 for $400,000,

increasing its ownership interest to 80% (assume no control premium). The fair value of S is

$1,000,000, and the fair value of the identifiable net assets of S is $800,000.

3. During the year, S sells inventory to P (upstream transaction) which P holds at year end. A

summary of the effect of the transaction on S’s income statement is as follows:

Revenues $ 100,000



4. During the year, P sells inventory to S (downstream transaction) which S holds at year end. A

summary of the effect of the transaction on P’s income statement is as follows:

Revenues $ 150,000



5. During the year, P makes an intercompany loan to S with principal of $1,000,000 and an annual

interest rate of 10%. S capitalizes the current year’s interest on the intercompany loan as part of

the cost to construct a building and remits cash to P for the annual interest incurred on the

intercompany loan.



6. During the year, P charges S a management fee of $1,500 for management services.

7. Company S has other comprehensive income of $25,000 from unrealized gains on available-for-

sale securities for the year.

8. The remaining useful life of the buildings and equipment at 1 January 20X2 is 10 years.

9. Assume inventory held by S at the beginning of the year and affected by the step up to fair value

on 1 January 20X2 is sold in the current year.

10. S pays cash dividends of $50,000 during the year, of which P’s share is $40,000.

Figure A-1: Balance sheet for Company P, 31 December 20X1 (all amounts in dollars) Cash 640,000


Inventory 184,000



1,494,000


Other liabilities 250,000

Common stock 200,000


Retained earnings 419,000

1,494,000

Figure A-2: Acquisition-date balance sheet for Company S, 1 January 20X2 (all amounts in

dollars) Book value Fair value

Cash 250,000 250,000

Available-for-sale securities 100,000 100,000

Accounts receivable 100,000 100,000

Inventory 150,000 200,000


800,000 950,000


Common stock 650,000

800,000



Figure A-3: Acquisition-date consolidating work paper to arrive at consolidated balance sheet, 1

January 20X2 (all amounts in dollars)

Company P

Company S

Adjustments


Cash 240,000 250,000 490,000

Available-for-sale securities — 100,000 100,000

Accounts receivable 190,000 100,000 290,000

Inventory 184,000 (1) 200,000 384,000

Buildings and equipment, net 220,000 (2) 300,000 520,000


Goodwill — (4) 200,000 200,000

Total assets 1,634,000 1,150,000 1,984,000

Accounts payable 125,000 150,000 275,000

Other liabilities 250,000 — 250,000


Common stock 200,000 (7) 800,000 (9) 800,000 200,000


Retained earnings (6) 559,000 — 559,000


1,259,000 800,000 1,259,000

Noncontrolling interest — (8) 200,000 200,000

Total equity 1,259,000 1,000,000 1,459,000


Figure A-3 illustrates the consolidating entries between P and S for the 1 January 20X2 business

combination.

(1) Inventory of S is adjusted to fair value.

(2) Buildings and equipment of S are adjusted to fair value.

(3) The $400,000 investment purchased on 1 January 20X2 is added to the book value of the original

investment ($260,000). In addition, a gain is recognized on the original investment to increase it

to fair value. This gain on investment of $140,000 is calculated as the fair value of the original

40% investment ($400,000) less the book value of the original investment.

(4) Goodwill is determined by subtracting the fair value of S’s net identifiable assets acquired

($800,000) from the fair value of S’s net assets ($1,000,000). In push-down accounting, the

goodwill is recorded on the books of S.

(5) P’s investment in S is eliminated.

(6) Retained earnings includes the original retained earnings of P ($419,000) and the gain on the

investment in S ($140,000).

(7) In push-down accounting, the basis of the equity is increased to equal the fair value of the net

assets less the noncontrolling interest.

(8) Noncontrolling interest is calculated by taking the fair value of S’s net assets ($1,000,000) and

subtracting the fair value of P’s 80% investment in S ($800,000). For illustrative purposes, no

control premium is assumed. In push-down accounting, the noncontrolling interest is recorded on

the books of S.

(9) S’s common stock is eliminated.



Figure A-4: Work paper of consolidated income statement, for year ended 31 December 20X2 (all

amounts in dollars)

Company P Company S

Adjustments


Revenues 500,000 300,000 (13) 250,000 550,000

Cost of revenues 200,000 (10) 145,000 (14) 150,000 195,000

Gross profit 300,000 155,000 355,000

Depreciation expense 60,000 (11) 60,000 120,000


Management fee expense — 1,500 (15) 1,500 —

Management fee revenue 1,500 — (15) 1,500 —

Interest income 100,000 — (16) 100,000 —

Dividend income 40,000 — (17) 40,000 —

Gain on investment 140,000 — 140,000

Net income 481,500 90,000 331,500

Net income attributable to

noncontrolling interest — (12) 18,000 (18) 6,000 12,000

Net income attributable to controlling

interest 481,500 72,000 319,500

Company P Company S

Adjustments


Net income 481,500 90,000 (19) 391,500 (19) 151,500 331,500

Other comprehensive income:

Unrealized gain on available-for-sale

securities — 25,000 25,000


Comprehensive income attributable

to noncontrolling interest — (20) 23,000 (19) 6,000 17,000

Comprehensive income attributable

to controlling interest 341,500 175,000 339,500

Figure A-4 illustrates the consolidating entries between P and S for the year ended 31 December 20X2.

(10) The cost of revenues includes the fair value adjustment made to inventory at the beginning of

the year because the inventory was sold during the year.

(11) Depreciation expense includes 20X2 depreciation of $10,000 ($100,000 / 10 years) related to

the step up in fair value at 1 January 20X2.

(12) Net income attributable to the noncontrolling interest on a push-down basis is based on the

percentage ownership interest of the noncontrolling interest (20%) and calculated as a

percentage of S’s income on a push-down basis ($90,000 x 20%).

(13) Intercompany revenues from the upstream ($100,000) and downstream ($150,000) sales are

eliminated.

(14) Intercompany cost of revenues from the upstream ($70,000) and downstream ($80,000) sales

are eliminated.

(15) Intercompany revenue and expense for the management fee charged to S is eliminated.

(16) Interest income on the outstanding intercompany loan is eliminated.



(17) The income recognized by P from the dividends received from S is eliminated.

(18) The intercompany profits from the upstream sale are eliminated in items (13) and (14). A

proportionate share of the upstream elimination is attributed to the noncontrolling interest

($30,000 x 20%). The elimination of the downstream sale is 100% attributable to the parent.

(19) Adjustments to net income from the income statement. See prior explanations of eliminations.

(20) Comprehensive income attributable to the noncontrolling interest on a push-down basis is based

on the percentage ownership interest of the noncontrolling interest (20%) and calculated as a

percentage of S’s comprehensive income on a push-down basis ($115,000 x 20%).

Figure A-5: Consolidating work paper to arrive at consolidated balance sheet, 31 December 20X2


Company P

Company S

Adjustments


Cash 200,000 125,000 325,000

Available-for-sale securities — 125,000 125,000

Accounts receivable 104,000 135,000 239,000

Intercompany receivable (21) 150,000 (21) 100,000 (23) 250,000 —

Inventory 106,000 245,000 (24) 100,000 251,000

Buildings and equipment, net 340,000 1,410,000 (25) 100,000 1,650,000

Intercompany loan (22) 1,000,000 — (26) 1,000,000 —


Goodwill — 200,000 200,000

Total assets 2,700,000 2,340,000 2,790,000

Accounts payable 279,000 125,000 404,000

Intercompany payable (21) 100,000 (21) 150,000 (23) 250,000 —

Intercompany loan — (22) 1,000,000 (26) 1,000,000 —



Common stock 200,000 800,000 (32) 800,000 200,000


Retained earnings (28) 900,500 (29) 32,000 (33) 240,000 (34) 40,000 738,500

(35) 6,000

Accumulated other

comprehensive income

— (30) 20,000 20,000


1,600,500 852,000 1,458,500

Noncontrolling interest (31) 213,000 (35) 6,000 207,000

Total equity 1,600,500 1,065,000 1,665,500


The balance sheet is consolidated in Figure A-5, as follows:

(21) Intercompany receivables and payables are recorded from the sales transactions between P and S.

(22) An intercompany loan was made to finance the construction of a new building for S.

(23) Intercompany receivables and payables from the upstream ($100,000) and downstream

($150,000) sales are eliminated.

(24) Intercompany profit remaining in inventory at year end from the upstream ($30,000) and

downstream ($70,000) sales is eliminated.

(25) Interest capitalized from the intercompany loan is eliminated.



(26) Outstanding intercompany loan is eliminated.


(28) P’s retained earnings are rolled forward as follows:

31 December 20X1 balance $ 419,000

Current year income 481,500


(29) S’s retained earnings are rolled forward as follows. In push-down accounting, only the earnings

and dividends attributable to the controlling interest are recorded in retained earnings.

31 December 20X1 balance $ –

Income attributable to controlling interest 72,000



(30) In push-down accounting, only the other comprehensive income attributable to the controlling

interest is recorded by S ($25,000 x 80%).

(31) Noncontrolling interest, on a push-down basis, is rolled forward as follows:

31 December 20X1 $ –

Creation of noncontrolling interest 200,000

Attributed net income 18,000


Dividends received (10,000)


(32) The common stock of S is eliminated.

(33) Net adjustments to net income from income statement. See items in income statement for

explanations of adjustments.

(34) The intercompany dividend is eliminated from S’s retained earnings.

(35) The intercompany profit from the upstream sale is proportionately eliminated from the

noncontrolling interest. For illustrative purposes, this entry has been made as a consolidation

entry; however, it typically would be made directly to the retained earnings and noncontrolling

interest on S’s books.


Assumptions:

1. P sells a 20% interest in S on 1 January 20X3 for $300,000.

2. During the year, S sells inventory to P, which P holds at year end. A summary of the effect of the

transaction on S’s income statement is as follows:

Revenues $ 130,000





3. During the year, P sells inventory to S, which S holds at year end. A summary of the effect of the

transaction on P’s income statement is as follows:

Revenues $ 100,000



4. The intercompany loan of $1,000,000 remains outstanding. Construction on the building is

complete, so S does not capitalize the interest payment for the current year. Depreciation begins

on the completed building (including the depreciation of the previously capitalized interest). The

useful life of the building is ten years.

5. During the year, P charges S a management fee of $1,500 for management services.

6. S has other comprehensive income for the year of $15,000 from unrealized gains on available-for-

sale securities.

7. All inventory held by S and P at 31 December 20X2 resulting from upstream and downstream

intercompany sales is sold to a nonaffiliated party.

8. S pays cash dividends of $50,000 during the year, of which P’s share is $30,000.

Figure A-6: Work paper of consolidated income statement for year ended 31 December 20X3 (all

amounts in dollars)

Company S

Adjustments

Consolidated Company P Debit Credit

Revenues 600,000 400,000 (37) 230,000 770,000

Cost of revenues 200,000 125,000 (38) 110,000 115,000

(39) 100,000

Gross profit 400,000 275,000 655,000

Depreciation expense 70,000 125,000 (40) 10,000 185,000


Management fee expense — 1,500 (41) 1,500 —

Management fee revenue 1,500 — (41) 1,500 —

Dividend income 30,000 — (42) 30,000 —

Interest income 100,000 — (43) 100,000 —

Interest expense — 100,000 (43) 100,000 —

Gain on sale of investment 100,000 — (44) 100,000 —

Net income 531,500 45,000 436,500

Net income (loss) attributable to noncontrolling interest — (36) 18,000 (45) 32,000 (46) 12,000 (2,000)


Company S

Adjustments

Consolidated Company P Debit Credit

Net income 531,500 45,000 (47) 461,500 (47) 321,500 436,500

Other comprehensive income:

Unrealized gain on available-for-sale securities — 15,000 15,000


Comprehensive income attributable to noncontrolling interests

— (48) 24,000 (47) 32,000 (47) 12,000 4,000

Comprehensive income attributable to controlling interest 531,500 36,000 447,500



Figure A-6 illustrates the consolidating entries between P and S for the year ended 31 December 20X3.

(36) Net income attributable to the noncontrolling interest on a push-down basis is based on the new

percentage ownership interest of the noncontrolling interest (40%) and calculated as a

percentage of S’s income on a push-down basis ($45,000 x 40%).

(37) Intercompany revenues from the upstream ($130,000) and downstream ($100,000) sales are

eliminated.

(38) Intercompany cost of revenues from the upstream ($50,000) and downstream ($60,000) sales

is eliminated.

(39) Reversal of elimination of intercompany profit in inventory held by S and P at 31 December

20X2 to cost of revenues as inventory is sold to a nonaffiliated party during the first inventory

turn of the year.

(40) Excess depreciation of $10,000 ($100,000 / 10 years) due to capitalized interest in the prior

year is eliminated.

(41) Intercompany revenue and expense for the management fee charged to S is eliminated.

(42) The income recognized by P from the dividends received from S is eliminated.

(43) Interest income and expense from the intercompany loan are eliminated.

(44) P recognized a gain on its investment in S (on its stand alone financial statements), calculated as

the excess of cash received ($300,000) over the carrying value of the portion of the investment

sold ($200,000). This gain is eliminated.

(45) The intercompany profits from the upstream sale are eliminated in items (37) and (38). A

proportionate share of the upstream elimination is attributed to the noncontrolling interest

($80,000 x 40%). The elimination of the downstream sale is 100% attributable to the parent.

(46) The intercompany profit from 20X2 on the upstream sale is realized in the current year because

the inventory was sold to a nonaffiliated party. A proportionate share of the profit is attributable

to the noncontrolling interest ($30,000 x 40%).

(47) Adjustments to net income from the income statement. See items above for explanations of

adjustments.

(48) Comprehensive income attributable to the noncontrolling interest on a push-down basis is based

on the percentage ownership interest of the noncontrolling interest (40%) and calculated as a

percentage of S’s comprehensive income on a push-down basis ($60,000 x 40%).



Figure A-7: Consolidating work paper to arrive at consolidated balance sheet, 31 December 20X3


Company P

Company S

Adjustments


Cash 310,000 330,000 640,000

Available-for-sale securities — 140,000 140,000 Accounts receivable 230,000 160,000 390,000 Intercompany receivable 100,000 130,000 (50) 230,000 —

Inventory 300,000 260,000 (51) 120,000 440,000 Buildings and equipment, net 500,000 1,285,000 (52) 90,000 1,695,000 Intercompany loan 1,000,000 — (53) 1,000,000 —

Investment in Company S (49) 600,000 — (54) 600,000 — Goodwill — 200,000 200,000

Total assets 3,040,000 2,505,000 3,505,000

Accounts payable 190,000 330,000 520,000 Intercompany payable 130,000 100,000 (50) 230,000 — Intercompany loan — 1,000,000 (53) 1,000,000 —


Total liabilities 908,000 1,430,000 1,108,000

Common stock 200,000 (56) 593,000 (60) 593,000 200,000 Additional paid-in capital 500,000 — (61) 98,000 598,000 Retained earnings (55) 1,432,000 (57) 35,000 (62) 250,000 (63) 30,000 1,177,000

(64) 90,000 (65) 32,000 (66) 12,000 Accumulated other comprehensive income

— (58) 29,000 (61) 5,000 24,000


2,132,000 657,000 1,999,000

Noncontrolling interest — (59) 418,000 (65) 32,000 (66) 12,000 398,000

Total equity 2,132,000 1,075,000 2,397,000


The balance sheet is consolidated in Figure A-7, as follows:

(49) P sold 20% of S (25% of its investment in S). The investment was reduced by 25% ($200,000) to

$600,000.

(50) Intercompany receivables and payables from the upstream ($130,000) and downstream

($100,000) sales are eliminated.

(51) Intercompany profit remaining in inventory at year end from the upstream ($80,000) and

downstream ($40,000) sales is eliminated.

(52) Interest capitalized in 20X2 from the intercompany loan is eliminated ($100,000), less current

year excess depreciation ($10,000).

(53) Outstanding intercompany loan is eliminated.


(55) P’s retained earnings are rolled forward as follows:



31 December 20X3 balance $1,432,000



(56) P sold a 20% interest in S for $300,000 on 1 January 20X3. On that date, the noncontrolling interest’s carrying value was $207,000, which represented a 20% interest in S. Thus, an

additional 20% interest ($207,000) was transferred from S’s common stock to the noncontrolling interest.

(57) S’s retained earnings are rolled forward as follows. In push-down accounting, only the earnings and dividends attributable to the controlling interest are recorded in retained earnings.


Noncontrolling interest profit elimination from 20X2 booked to S 6,000

Income attributable to controlling interest 27,000

Dividends paid (30,000)


(58) Accumulated other comprehensive income is rolled forward as follows:


Comprehensive income attributable to controlling interest 9,000


(59) Noncontrolling interest, on a push-down basis, is rolled forward as follows:


Noncontrolling interest profit from 20X2 elimination booked to S (6,000)

Additional interest sold by P 207,000


Current year other comprehensive income 6,000

Dividends received (20,000)


(60) The common stock of S is eliminated.

(61) P sold a 20% interest in S for $300,000 on 1 January 20X3. This sale is treated as an equity

transaction with no gain or loss recognized. The difference between the cash received and carrying value of the interest sold ($207,000) is recorded as an adjustment to APIC.

In addition, AOCI is adjusted to reallocate AOCI for the interest sold by P. The 31 December 20X2

balance in AOCI was $25,000. Since a 20% interest in S was sold, $5,000 (20% x $25,000) was

transferred out of AOCI and recorded as an adjustment to APIC.

(62) Net adjustments to net income from income statement. See items in income statement for

explanations of adjustments.

(63) The intercompany dividend is removed from S’s retained earnings.

(64) Interest income recognized by P in 20X2 is eliminated ($100,000), less current year

depreciation ($10,000).

(65) The intercompany profit from the upstream sale is proportionately removed from the noncontrolling interest. For illustrative purposes, this entry has been made as a consolidation

entry; however, it ordinarily would be made directly to the retained earnings and noncontrolling interest on S’s books.

(66) The intercompany profit from Year 20X2 on the upstream sale is realized in the current year

because the inventory was sold externally. A proportionate share of the profit is attributable to the noncontrolling interest ($30,000 x 40%).




As of 31 December 20X3, P owns 60% of S, which has net assets of $945,000. The carrying amount

of the noncontrolling interest’s 40% interest in Company S is $398,000, which includes $16,000 of

accumulated other comprehensive income.

Assumptions:

1. P sells an additional 15% of its ownership for $300,000, assuming no control premium on

Company S, on 1 January 20X4, resulting in a loss of control and deconsolidation of S on 1

January 20X4. The fair value of the retained 45% interest in S is $900,000.

2. The fair value of the intercompany loan on 1 January 20X4 is $1,000,000.

Figure A-8: Consolidating work paper to arrive at consolidated balance sheet, 1 January 20X4


Company P

Adjustments

Consolidated

Debit Credit

Cash 310,000 (68) 300,000 610,000

Accounts receivable 230,000 (69) 100,000 330,000

Intercompany receivable 100,000 (69) 100,000 —

Inventory 300,000 (70) 80,000 220,000


Intercompany loan (67) 1,000,000 1,000,000

Investment in Company S 600,000 (71) 300,000 900,000

Total assets 3,040,000 3,560,000

Accounts payable 190,000 (69) 130,000 320,000

Intercompany payable 130,000 (69) 130,000 —

Intercompany loan — —

Other liabilities 588,000 588,000

Total liabilities 908,000 908,000

Common stock 200,000 200,000

Additional paid-in capital 500,000 (72) 98,000 598,000

Retained earnings 1,432,000 (73) 255,000 (74) 677,000 1,854,000


— —

Total parent shareholders’ equity 2,132,000 2,652,000

Noncontrolling interest — —

Total equity 2,132,000 2,652,000

Total liabilities and equity 3,040,000 3,560,000

Figure A-8 illustrates the deconsolidating entries between P and S, as follows:

(67) The creditor interest in S would be adjusted to fair value. For illustrative purposes, the carrying

value of the intercompany loan is equal to the fair value of the intercompany loan at the date of

deconsolidation.

(68) Cash is received on the sale of 15% interest.

(69) Intercompany receivable and payable are reclassified to accounts receivable and accounts payable.



(70) The intercompany profit included in inventory held by P at 1 January 20X4 is eliminated.

(71) The retained 45% interest in S is adjusted to fair value.

(72) APIC is adjusted for the sale of a 20% interest in S in 20X3, treated as an equity transaction.

(73) Retained earnings of P is adjusted for all prior intercompany adjustments and earnings of S.

(74) Company P’s gain is calculated as follows:

Proceeds $ 300,000

Fair value of retained interest 900,000

Carrying value of noncontrolling interest 398,000

AOCI attributable to P 24,000

1,622,000

Carrying amount of S’s net assets (945,000)

Gain $ 677,000


derecognized, and the cash proceeds and gain should be recognized through the following

journal entry:

Cash $ 300,000



Intercompany loan 1,000,000

Intercompany payable 100,000

AOCI 24,000


Cash $ 330,000

Available-for-sale securities 140,000


Intercompany receivable 130,000

Inventory 220,000

Buildings and equipment, net 1,195,000

Goodwill 200,000

Gain 677,000

Financial reporting developments Consolidated and other financial statements B-1

B Comparison of ASC 810 to IAS 27(R)

The following table compares certain aspects of the major tenets of ASC 810 and IAS 27(R),

Consolidated and Separate Financial Statements. The table below only addresses consolidated financial

statements (that is, it does not address parent-only financial statements). In May 2011, the IASB issued

IFRS 10, Consolidated Financial Statements, which replaces portions of IAS 27(R). IFRS 10 is effective for

years beginning after 1 January 2013 with early adoption permitted. IFRS 10 did not modify the IAS 27

(R) accounting requirements depicted in the table below.

ASC 810 IAS 27 (R)

Valuation of

noncontrolling

interest in a

business

combination

achieved in stages

(commonly referred

to as a “step

acquisition”).

Noncontrolling interest’s share of identifiable

net assets recognized at fair value at date

control is obtained. Step acquisitions/disposals

are to be accounted for as equity transactions

while control is maintained.

Redeemable noncontrolling interest is

measured pursuant to ASC 480-10-S99-3A for

SEC registrants

Companies may elect to recognize the

noncontrolling interest at fair value

(consistent with current ASC 810) or its

proportionate share of the fair value of

identifiable net assets. If the fair value

method is elected, 100% of the goodwill is

recognized in the parent’s consolidated

financial statements (consistent with

Statement 160). If the proportionate share

method is elected, only the controlling

interest’s share of goodwill is recognized

Reporting

noncontrolling

interest in the

consolidated

statement of

financial position

Noncontrolling interest is reported as a

separate component of consolidated

stockholder’s equity.

Redeemable noncontrolling interest is

classified pursuant to ASC 480-10-S99-3A for

SEC registrants

Consistent with current ASC 810, except

for redeemable noncontrolling interest

Losses are allocated to the noncontrolling

interests even if the losses exceed the

noncontrolling interests’ basis in the equity

capital of the subsidiary, thus resulting in a

contra-equity (that is, deficit) balance

Consistent with current ASC 810

Reporting the

noncontrolling

interest in the

consolidated income

statement

Amounts that are attributed to the

noncontrolling interest are to be reported as

part of consolidated net income and not as a

separate component of income or expense.

Disclosure of the attribution between

controlling and noncontrolling interests on the

face of the income statement is required


Reporting the

noncontrolling

interest in the

consolidated income

statement

(continued)

Earnings and comprehensive income are

attributed to the controlling and noncontrolling

interests based on a substantive profit sharing

agreement (or relative ownership percentage

in the absence of a substantive profit sharing

arrangement).


B Comparison of ASC 810 to IAS 27(R)

Financial reporting developments Consolidated and other financial statements B-2

ASC 810 IAS 27 (R)

Changes in

ownership interest

in a subsidiary

without loss of

control

Transactions that result in decreases in a

parent’s ownership interest in a subsidiary in

either of the following without a loss of control

are accounted for as equity transactions in the

consolidated entity (that is, no gain or loss is

recognized):

1. A subsidiary that is a business or a

nonprofit activity, except for either of the

following:

a. A sale of in-substance real estate

b. A conveyance of oil and gas mineral

rights

2. A subsidiary that is not a business or a

nonprofit activity if the substance of the

transaction is not addressed directly by

other ASC Topics

Consistent with US GAAP, except that the

guidance in IAS 27(R) applies to all

subsidiaries, even those that are not

businesses or nonprofit activities or those

that involve sales of in-substance real

estate or conveyance of oil and gas mineral

rights. IAS 27(R) also does not address

whether that guidance should be applied to

transactions involving nonsubsidiaries that

are businesses or nonprofit activities.

Loss of control of a

subsidiary

In certain transactions that result in a loss of

control of a subsidiary or a group of assets, any

retained noncontrolling investment in the

former subsidiary or group of assets is

remeasured to fair value on the date control is

lost. The gain or loss on remeasurement is

included in income along with the gain or loss

on the ownership interest sold.

This accounting is limited to the following

transactions:

1. Loss of control of a subsidiary that is a

business or a nonprofit activity, except for

either of the following:



rights

2. Loss of control of a subsidiary that is not a

business or a nonprofit activity if the

substance of the transaction is not

addressed directly by other ASC Topics

3. The derecognition of a group of assets

that is a business or a nonprofit activity,

except for either of the following:



rights

Consistent with US GAAP, except that the

guidance in IAS 27(R) applies to all

subsidiaries, even those that are not

businesses or nonprofit activities or those

that involve sales of in-substance real

estate or conveyance of oil and gas mineral

rights. IAS 27(R) also does not address

whether that guidance should be applied to

transactions involving nonsubsidiaries that

are businesses or nonprofit activities.

IAS 27(R) does not address the

derecognition of assets outside the loss of

control of a subsidiary.

Financial reporting developments Consolidated and other financial statements C-1

C Summary of important changes

The following highlights important changes to this FRD in this October 2012 update:

Chapter 2: Nature and classification of the noncontrolling interest

• Made certain enhancements to the interpretive guidance related to noncontrolling interest

classification and measurement issues.

Chapter 3: Attribution of net income or loss and comprehensive income or loss

• Question 3-1 was added to provide interpretive guidance related to whether the hypothetical

liquidation at book value method can be used to attribute net income or loss and comprehensive

income or loss

Chapter 4: Changes in a parent’s ownership interest in a subsidiary while control is retained

• Section 4.1.2.1 was added to provide interpretive guidance related to stock options of subsidiary stock.

Chapter 5: Intercompany eliminations

• Question 5-1 was added to provide interpretive guidance on the attribution of intercompany

eliminations to the noncontrolling interests for consolidated variable interest entities.

Chapter 6: Loss of control over a subsidiary or a group of assets

• Interpretive guidance updated to highlight recent discussion of the Emerging Issues Task Force

(EITF) regarding a parent’s accounting for the cumulative translation adjustment upon the loss of a

controlling financial interest in certain subsidiaries or assets.

• Question 6-1 was added to highlight the issuance of ASU 2011-10, which addresses the

deconsolidation of entities that are in-substance real estate.

Chapter 9: Presentation and disclosures

• Interpretive guidance and examples updated to conform with the guidance in ASU 2011-05 and ASU

2011-12, which address the presentation of comprehensive income.

• Section 9.1.4.1 was added to provide interpretive guidance on the cash flow statement classification

of transaction costs related to changes in a parent’s ownership in a subsidiary that do not result in a

loss of control.

Financial reporting developments Consolidated and other financial statements D-1

D Abbreviations used in this publication

Abbreviation FASB Accounting Standards Codification

ASC 230 FASB ASC Topic 230, Statement of Cash Flows

ASC 250

ASC 310

FASB ASC Topic 250, Accounting Changes and Error Corrections

FASB ASC Topic 310, Receivables

ASC 320 FASB ASC Topic 320, Investments — Debt and Equity Securities

ASC 323 FASB ASC Topic 323, Investments –Equity Method and Joint Ventures

ASC 350 FASB ASC Topic 350, Intangibles — Goodwill and Other

ASC 360 FASB ASC Topic 360, Property, Plant, and Equipment

ASC 450 FASB ASC Topic 450, Contingencies

ASC 460 FASB ASC Topic 460, Guarantees

ASC 470 FASB ASC Topic 470, Debt

ASC 480 FASB ASC Topic 480, Distinguishing Liabilities from Equity

ASC 605 FASB ASC Topic 605, Revenue Recognition

ASC 740 FASB ASC Topic 740, Income Taxes

ASC 805 FASB ASC Topic 805, Business Combinations

ASC 810 FASB ASC Topic 810, Consolidation

ASC 815 FASB ASC Topic 815, Derivatives and Hedging

ASC 825 FASB ASC Topic 825, Financial Instruments

ASC 830 FASB ASC Topic 830, Foreign Currency Matters

ASC 835 FASB ASC Topic 835, Interest

ASC 845 FASB ASC Topic 845, Nonmonetary Transactions

ASC 860 FASB ASC Topic 860, Transfers and Servicing

ASC 932 FASB ASC Topic 932, Extractive Activities — Oil and Gas

ASC 944 FASB ASC Topic 944, Financial Services — Insurance

ASC 958 FASB ASC Topic 958, Not-for-Profit Entities

ASC 970 FASB ASC Topic 970, Real Estate — General

ASC 976 FASB ASC Topic 976, Real Estate — Retail Land

ASU 2011-05 Accounting Standards Update No. 2011-05, Presentation of Comprehensive

Income

ASU 2011-10 Accounting Standards Update No. 2011-10, Derecognition of in Substance Real

Estate — a Scope Clarification

ASU 2011-12 Accounting Standards Update No. 2011-12, Deferral of the Effective Date

for Amendments to the Presentation of Reclassifications of Items Out of

Accumulated Other Comprehensive Income in Accounting Standards Update

No. 2011-05

D Abbreviations used in this publication

Financial reporting developments Consolidated and other financial statements D-2

Abbreviation Other Authoritative Standards

Concepts Statement

6

FASB Statement of Financial Accounting Concepts No. 6, Elements of Financial

Statements

SAB Topic 5-E Codified Staff Accounting Bulletins, Topic 5-E, Accounting For Divesture Of A

Subsidiary Or Other Business Operation

Abbreviation Non-Authoritative Standards

EITF 00-4 EITF Issue No. 00-4, ―Majority Owner's Accounting for a Transaction in the

Shares of a Consolidated Subsidiary and a Derivative Indexed to the Minority

Interest in That Subsidiary‖

SAB Topic 5-H Staff Accounting Bulletins, Topic 5-H, Accounting for Sales of Stock by a

Subsidiary

Statement 141 FASB Statement No. 141, Business Combinations

Statement 141(R) FASB Statement No. 141(R), Business Combinations

Statement 160 FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial

Statements, an amendment of ARB No. 51

Financial reporting developments Consolidated and other financial statements E-1

E Index of ASC references in this publication

ASC Reference

Section

230-10-45-14 9.1.4 Consolidated statement of cash flows presentation

230-10-45-15 9.1.4 Consolidated statement of cash flows presentation

323-10-15-6 6.1.9 Subsequent accounting for retained noncontrolling investment



350-20-35-57A 3.1.4 Attribution of goodwill impairment

350-20-35-57A 3.1.5 Attributions related to business combinations effected before

Statement 160 and Statement 141(R) were adopted

360-20 4.1.2.2 Scope exception for in-substance real estate transactions

360-20 6.1.7 Deconsolidation through a bankruptcy proceeding

360-20-15-2 4.1.2.6 Decreases in ownership through issuance of partnership units that

have varying profit or liquidation preferences

















450-20-25-2 6.1.4.1 Accounting for contingent consideration in deconsolidation

450-30 6.1.4.1 Accounting for contingent consideration in deconsolidation

480 2.2.1 Is the equity derivative embedded in the noncontrolling interest or

freestanding?

480-10-30-1 2.2.5 Examples of the presentation of noncontrolling interests with

equity derivatives issued on those interests

480-10-30-3 2.2.2 Equity derivatives deemed to be financing arrangements





ASC Reference

Section























480-10-65-1(b) 2.2.5 Examples of the presentation of noncontrolling interests with


480-10-S99-3A 2.2.3 Application of the redeemable equity guidance

480-10-S99-3A 2.2.3.1 Measurement and reporting issues related to redeemable equity

securities

480-10-S99-3A 2.2.4 Earnings per share considerations

480-10-S99-3A 2.2.5 Examples of the presentation of noncontrolling interests with


480-10-S99-3A 2.2.6 Redeemable or convertible equity securities and UPREIT

structures

480-10-S99-3A 2.2.7 Redeemable noncontrolling interest denominated in a foreign

currency

480-10-S99-3A 6.1.3 Gain/loss recognition

480-10-S99-3A 9.1.2.1 Presentation of redeemable noncontrolling interests in equity

reconciliation

605-40 6.1.4.1 Accounting for contingent consideration in deconsolidation

740 3.1.6 Effect on effective income tax rate

805 1.2.1 Acquisition through single step

805 1.2.2 Acquisition through multiple steps

805-20-30 2.2.3.1 Measurement and reporting issues related to redeemable equity

securities

810-10-10-1 1.1 Objectives and scope



ASC Reference

Section

Consolidated financial statements





810-10-15-10 6.1.7 Deconsolidation through a bankruptcy proceeding

810-10-15-11 1.4 Differing fiscal year-ends between parent and subsidiary

810-10-20 2.1 Noncontrolling interests

810-10-20 4.1 Increases and decreases in a parent’s ownership of a subsidiary

810-10-40-3A 6.1 Deconsolidation of a subsidiary or derecognition of certain groups

of assets

810-10-40-3A 6.1.1 Loss of control

810-10-40-3A 6.1.3 Gain/loss recognition

810-10-40-3A 6.1.4.2 Accounting for a retained creditor interest in deconsolidation

810-10-40-3A 6.1.5 Accounting for accumulated other comprehensive income in

deconsolidation

810-10-40-3A 6.1.7 Deconsolidation through a bankruptcy proceeding

810-10-40-3A 6.1.9 Subsequent accounting for retained noncontrolling investment

810-10-40-3A 6.2.1 Deconsolidation by selling entire interest

810-10-40-4 6.1 Deconsolidation of a subsidiary or derecognition of certain groups

of assets


of assets

810-10-40-5 6.1.3 Gain/loss recognition

810-10-40-5 6.1.4 Measuring the fair value of consideration received and any

retained noncontrolling investment

810-10-40-5 6.1.4.1 Accounting for contingent consideration in deconsolidation

810-10-40-5 6.1.8 Gain/loss classification and presentation

810-10-40-6 4.1 Accounting for transaction costs incurred in connection with

changes in ownership


of assets

810-10-40-6 6.1.6 Deconsolidation through multiple arrangements

810-10-45 1.1 Objectives and scope

810-10-45-1 5.1 Procedures for eliminating intercompany balances and

transactions

810-10-45-1 5.1.1 Effect of noncontrolling interest on elimination of intercompany

amounts


transactions


transactions


transactions



ASC Reference

Section


transactions

810-10-45-10 7.1 Purpose of and procedures for combined financial statements

810-10-45-10 7.1.2 Procedures applied in combining entities for financial reporting

810-10-45-11 8.1 Purpose of and procedures for parent-company financial

statements



810-10-45-14 1.3 Proportionate consolidation

810-10-45-15 2.1 Noncontrolling interests


810-10-45-16A 2.1 Noncontrolling interests


810-10-45-17A 2.1 Noncontrolling interests

810-10-45-18 5.1.1 Effect of noncontrolling interest on elimination of intercompany

amounts

810-10-45-19 3.1 Attribution procedure



810-10-45-21A 4.1 Increases and decreases in a parent’s ownership of a subsidiary

810-10-45-21A 4.1.2 Decreases in a parent’s ownership interest in a subsidiary without

loss of control

810-10-45-21A 4.1.3 Accumulated other comprehensive income considerations

810-10-45-21A 4.1.6 Accounting for transaction costs incurred in connection with

changes in ownership

810-10-45-21A 4.1.7 Chart summarizing accounting for changes in ownership

810-10-45-21A 4.2 Comprehensive example

810-10-45-21A 9.1.4 Consolidated statement of cash flows presentation

810-10-45-21A A Comprehensive example

810-10-45-22 4.1 Increases and decreases in a parent’s ownership of a subsidiary




810-10-45-23 4.1.2.5 Issuance of preferred stock by a subsidiary




810-10-50-1 9.1 Certain presentation and disclosure requirements related to

consolidation

810-10-50-1A 9.1 Certain presentation and disclosure requirements related to

consolidation

810-10-50-1A 9.1.2.1 Presentation of redeemable noncontrolling interests in equity

reconciliation

810-10-50-1A 9.1.2.2 Interim reporting period requirements



ASC Reference

Section

810-10-50-1A 9.1.3 Consolidated statement of financial position presentation

810-10-50-1A 9.2 Comprehensive example

810-10-50-1B 6.1.4 Measuring the fair value of consideration received and any

retained noncontrolling investment

810-10-50-1B 9.1 Certain presentation and disclosure requirements related to

consolidation

810-10-50-1B 9.2 Comprehensive example


810-10-55-1B 7.1 Purpose of and procedures for combined financial statements

810-10-55-4A 6.1 Deconsolidation of a subsidiary or derecognition of certain groups

of assets

810-10-55-41 2.1 Noncontrolling Interests

810-10-55-41 9.1.3 Consolidated statement of financial position presentation

810-10-S99-5 6.1.3 Gain/loss recognition

815-15 2.2.1.1 Equity derivatives considered embedded

815-15 2.2.5 Examples of the presentation of noncontrolling interests with


815-10-15 2.2.1.1 Equity derivatives considered embedded

815-10-15-74(a) 2.2.1.1 Equity derivatives considered embedded

815-10-15-74(a) 2.2.1.2 Equity derivatives considered freestanding

815-10-15-99 2.2.1.1 Equity derivatives considered embedded

815-40-15-5C 2.1 Noncontrolling interests

815-40-15-5C 2.2.1.1 Equity derivatives considered embedded

815-40-15-5C 2.2.5 Examples of the presentation of noncontrolling interests with


815-40-25 2.2.6 Redeemable or convertible equity securities and UPREIT

structures

815-40-25-7 through

25-35

2.2.3 Application of the redeemable equity guidance

815-40-25-1 through

25-43

2.2.5 Examples of the presentation of noncontrolling interests with


825-10-25 6.1.4.1 Accounting for contingent consideration in deconsolidation

932-360-40 4.1.2.3 Scope exception for oil and gas conveyances

932-360-55-3 4.1.2.3 Scope exception for oil and gas conveyances

944-80-25-2 2.2.7 Redeemable noncontrolling interest denominated in a foreign

currency


currency


currency

970-323-25-12 1.3 Proportionate consolidation

970-323-35-17 3.1.1 Substantive profit sharing arrangements

976-605 4.1.2.2 Scope exception for in-substance real estate transactions

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