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Unformatted text preview: or “minority interest” → claim of these shareholders on the income and net assets of the subsidiary. Parent >50% NCI <50 % Sub 2-14 Presentation of Noncontrolling Interest (NCI) FASB’s new standard on reporting noncontrolling interests, FASB 160 (ASC 160) requires: “Consolidated Net Income”: income available to ALL stakeholders, with the allocation of that income between the controlling & noncontrolling stockholders. Ex.: Parent Company owns 90% of Sub Company’s stock, acquired without a differential, and the two companies report revenues & expenses as follows: 2-15 Presentation of Noncontrolling Interest (NCI) Abbreviated Consolidated Income Statement for Parent and its subsidiary 2-16 Presentation of Noncontrolling Interest (NCI) FASB 160 (ASC 810) requires reporting the FASB noncontrolling interest in equity: equity 2-17 Presentation of Noncontrolling Interest (NCI) Full consolidation required by US GAAP (100%) → 2 special accounts appear in consolidated statements: 1. NCI in Net Income of Sub (Income Statement) 1. “Reported income that doesn’t belong to us.” NCI in Net Assets of Sub (Balance Sheet) Equity of unrelated owners “Net assets on our balance sheet not belonging to us.” 2-18 Different Approaches to Consolidation Theories that might serve as a basis for preparing consolidated financial statements: 1. 2. Parent company theory 3. Proprietary theory Entity theory FASB 141R → the FASB’s approach to consolidation now focuses on the entity theory. 2-19 Summary of Differences in Consolidation Wholly Owned Subsidiary Investment = Book Value Investment > Book Value Partially Owned Subsidiary No Chapter 2 Chapter 3 Differential Chapter 4 Chapter 5 Differential No NCI NCI Shareholders Shareholders 2-20 Consolidation of Less­than­wholly­owned Subs: Example Peerless acquires 80% of Special Foods’ outstanding common stock for $240,000, an amount equal to 80% of the fair value of Special Foods’ net assets on January 1, 20X1. On this date, the fair values of Special Foods’ individual assets and liabilities are equal to their book values. 2-21 Basic Investment Elimin...
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