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Changes in a parent’s ownership interest that do not result in a change in control of the subsidiary that is a business are accounted for as equity transactions (i.e., no gain or loss is recognized in earnings) and are accounted for in accordance with ASC 810-10-45-22 through ASC 810-10-45-24. The carrying amount of the NCI will be adjusted to reflect the change in the NCI’s ownership interest in the subsidiary. Any difference between the amount by which the NCI is adjusted and the fair value of the consideration paid or received is recognized in equity/APIC and attributed to the equity holders of the parent in accordance with ASC 810-10-45-23. See TX 10.9 for information on recording the tax effects of transactions with noncontrolling shareholders.
The scope of the guidance for changes in a parent’s ownership interest in a subsidiary is set forth in ASC 810-10-45-21A.

ASC 810-10-45-21A

The guidance in paragraphs 810-10-45-22 through 45-24 applies to the following:

  1. Transactions that result in an increase in ownership of a subsidiary
  2. 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:
      1. Subparagraph superseded by Accounting Standards Update No. 2017-05
      2. 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).
      3. A transfer of a good or service in a contract with a customer within the scope of Topic 606.
    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:
      1. Topic 606 on revenue from contracts with customers
      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. Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets.

A subsidiary may issue shares to a third party, thereby diluting the controlling interest’s ownership percentage. The issuance of additional instruments of the subsidiary, such as preferred shares, warrants, puts, calls, and options, may also dilute the controlling interest’s ownership percentage when issued or exercised. If this dilution does not result in a change in control, it is accounted for as an equity transaction.
Similarly, the ownership interest of a parent may increase when it purchases additional shares of a subsidiary from a third party or if a subsidiary reacquires some of its own shares, thereby increasing the parent’s proportionate ownership interest in the subsidiary. If the additional interest does not result in a change in control, the transaction is accounted for as an equity transaction. However, the reporting entity should also consider the guidance in ASC 505-30, Treasury Stock, and FG 9.3.4 on multiple element treasury stock transactions if the purchase price of the shares is greater than fair value.
Example BCG 5-5, Example BCG 5-6, and Example BCG 5-7 demonstrate changes in ownership interest when control of a business does not change.
EXAMPLE BCG 5-5
Acquisition of additional shares – control of business before and after transaction (i.e., no loss of control)
Company A previously acquired Company B by purchasing 60% of its equity for $300 million in cash. The journal entry to record the transaction was as follows:
Dr. Identifiable net assets
$370
Dr. Goodwill
$130
Cr. Cash
$300
Cr. NCI
$200
Two years after the business combination, Company A purchases the outstanding 40% interest from the subsidiary’s noncontrolling shareholders for $300 million in cash. The carrying value of the 40% NCI is $260 million (original value of $200 million, plus $60 million, assumed to be allocated to the NCI over the past two years for its share in the income of the subsidiary and its share of accumulated other comprehensive income).
How should Company A account for the change in ownership interest?
Analysis
A change in ownership interests that does not result in a change of control is considered an equity transaction. The identifiable net assets remain unchanged and any difference between the amount by which the NCI is adjusted and the fair value of the consideration paid is recognized directly in equity/APIC and attributed to the controlling interest in accordance with ASC 810-10-45-23.
The journal entry recorded for the 40% interest acquired would be as follows (in millions):
Dr. NCI
$260 1
Dr. Equity/APIC
$40 2
Cr. Cash
$300
1 Elimination of the carrying value of the 40% NCI on Company A’s books.
2 Fair value of the consideration paid less the carrying value of NCI ($300 – $260)
EXAMPLE BCG 5-6
Sale of shares in a business but control is maintained (i.e., no loss of control)
Company A previously acquired Company B, a wholly-owned subsidiary. Company A sells a 20% interest in the subsidiary to outside investors for $200 million in cash. Company A maintains an 80% controlling interest in the subsidiary. The carrying value of the subsidiary’s net assets is $600 million, including goodwill of $130 million from the initial acquisition of the subsidiary.
How should Company A account for the change in ownership interest?
Analysis
A change in ownership interests that does not result in a change of control is considered an equity transaction. The identifiable net assets remain unchanged and any difference between the amount by which the NCI is recorded, and the fair value of the consideration received, is recognized directly in equity and attributed to the controlling interest in accordance with ASC 810-10-45-23. NCI is recognized at fair value only at the date of the business combination. For subsequent changes in ownership interest that do not result in a change of control, the change in the NCI is recorded at its proportionate interest of the carrying value of the subsidiary.
The journal entry recorded on the disposition date for the 20% interest sold would be as follows (in millions):
Dr. Cash
$200
Cr. NCI
$120 1
Cr. Equity/APIC
$80 2
1 Recognition of the 20% NCI at its proportionate interest in the carrying value of the subsidiary ($600 × 20%)
2 Fair value of the consideration received less the carrying value of the NCI ($200 – ($600 × 20%))
EXAMPLE BCG 5-7
Sale of additional shares by subsidiary which dilutes controlling interest’s ownership percentage, but control is maintained
On December 31, 20X1, Company A owns 90 shares (90%) of Subsidiary Z. On January 1, 20X2, Subsidiary Z sells an additional 20 shares to Company C (an unrelated party) for $200 million in cash.
Assume the following facts on December 31 and January 1 ($ in millions):
December 31 (pre-sale)
January 1 (post-sale)
Total shares outstanding—subsidiary Z
100 shares
120 shares
Company A’s ownership percentage in subsidiary Z
90% 1
75% 2
Company A’s basis in subsidiary Z
$370 3
$458 4
Subsidiary Z’s net equity
$411
$611
1 90 shares divided by 100 shares outstanding
2 90 shares divided by 120 shares outstanding
3 Subsidiary Z’s net equity × 90%
4 Subsidiary Z’s net equity × 75%
For purposes of this example, it is assumed that there is no basis difference between Company A’s investment in Subsidiary Z and Subsidiary Z’s net equity.
How should Company A account for the change in ownership interest?
Analysis
Company A’s ownership percentage of Subsidiary Z has been diluted from 90% to 75%. This is a change in Company A’s ownership interest that does not result in a change of control and, therefore, is considered an equity transaction. Any difference between the amount by which the carrying value of Company A’s basis in Subsidiary Z would be adjusted and the fair value of the consideration received is recognized directly in equity and attributed to the controlling interest in accordance with ASC 810-10-45-23.
In its consolidated accounts, Company A would record the following journal entry (in millions):
Dr. Cash
$200
Cr. Equity/APIC
  $88 1
Cr. NCI
$112 2
1 Company A’s share of the fair value of the consideration received ($200 × 75%) less the change in Company A’s basis in Subsidiary Z ($411 × (90% – 75%))
2 The change in the recorded amount of NCI represents:
NCI’s share of the fair value of the consideration received ($200 × 25%)
$50
Change in NCI’s basis in Subsidiary Z ($411 × 15%)
$62
Additional NCI recorded
$112

5.4.1 Equity-classified freestanding written call options

Equity-classified freestanding written call options may be issued on the subsidiary’s shares. The accounting differs depending on whether the shares are issued by the parent or the subsidiary.

5.4.1.1 Equity-classified freestanding written call option on subsidiary’s shares issued by parent

A freestanding written call option on a subsidiary’s shares (that is a business) issued by a parent that qualifies for equity classification should be accounted for by the parent as noncontrolling interest for the amount of consideration received for the written call option. However, during the period the option is outstanding, the option holder should not be attributed any profit or loss of the subsidiary. The noncontrolling interest remains in existence until the option expires. See FG 5.6 for additional guidance on the accounting for freestanding equity-linked instruments after adoption of ASU 2020-06 (or FG 5.6A for additional guidance on the accounting for freestanding equity-linked instruments prior to adoption of ASU 2020-06).
If the option is exercised and the parent retains control of the subsidiary, the change in the parent’s ownership interest should be accounted for as an equity transaction in accordance with ASC 810-10-45-23. Upon exercise, the newly issued shares should be reported as noncontrolling interest equal to the noncontrolling interest holder’s proportionate share of the parent’s basis in the subsidiary’s equity. Conversely, if the option expires, the carrying amount of the written option should be reclassified from noncontrolling interest to the equity of the controlling interest in accordance with ASC 810-10-45-17A.
Example BCG 5-8 illustrates the accounting for an equity-classified freestanding written call option on a subsidiary’s shares (that is a business) issued by a parent.
EXAMPLE BCG 5-8
Accounting for a freestanding written call option on a subsidiary’s shares (that is a business) issued by a parent
Company A issues a warrant (written call option) to purchase 10% of wholly-owned Subsidiary’s shares with an exercise price of $150 to Investor B for $60. Before and after Investor B’s exercise of the warrant, Company A’s carrying amount in Subsidiary, including goodwill, is $1,000. There are no basis differences between Company A’s investment in Subsidiary and Subsidiary’s equity. There is no other existing noncontrolling interest.
How should Company A account for the freestanding written call option?
Analysis
In consolidation, Company A would record the following journal entries:
To record the issuance of the warrant
Dr. Cash
$60
Cr. Noncontrolling interest
$60
To record the exercise of the warrant
Dr. Cash
$150
Cr. Noncontrolling interest
$40 1
Cr. APIC
$110 2
1 Company A’s basis in Subsidiary’s equity after exercise of warrant
$1,000
Investor B’s ownership percentage
x 10%
Noncontrolling interest after exercise
100
Less: Noncontrolling interest prior to exercise
(60)
Increase in noncontrolling interest
$40
2 Warrant consideration received by Company A
$60
Plus: Exercise price
150
Total consideration received by Company A
210
Less: 10% of Company A’s basis in Subsidiary’s equity
   (100)
Change in Company A’s APIC
$110
If the warrant was not exercised but expires, Company A would record the following entry to reclassify the premium received for the warrant in accordance with ASC 810-10-45-17A:
To account for the expiration of the warrant
Dr. Noncontrolling interest
$60
Cr. APIC
$60

5.4.1.2 Equity-classified freestanding written call option on subsidiary’s shares issued by subsidiary

A freestanding written call option on a subsidiary’s shares issued by the subsidiary that qualifies for equity classification should also be accounted for by the parent as noncontrolling interest for the amount of consideration received for the written call option. During the period the option is outstanding, the option holder should not be attributed any profit or loss of the subsidiary. The noncontrolling interest remains in existence until the option expires.
If the option is exercised and the parent maintains control of the subsidiary, the change in the parent’s ownership interest should be accounted for as an equity transaction. Upon exercise, the newly issued shares should be reported as noncontrolling interest equal to the noncontrolling interest holder’s proportionate share of the parent’s investment in the subsidiary’s equity. Conversely, if the option expires, the parent should record a reduction in the noncontrolling interest for the parent’s proportionate share of the carrying amount of the written option in accordance with ASC 810-10-45-17A.
Example BCG 5-9 illustrates the accounting for an equity-classified freestanding written call option on a subsidiary’s shares (that is a business) issued by a subsidiary.
EXAMPLE BCG 5-9
Accounting for a freestanding written call option on a subsidiary’s shares (that is a business) issued by a subsidiary
Subsidiary, which is wholly-owned and controlled by Company A, issues a warrant (written call option) to purchase 10% of Subsidiary’s shares with an exercise price of $150 to Investor B for $60. After Investor B’s exercise of the warrant, Subsidiary’s equity, including goodwill, is $1,210 ($1,000 of net assets plus $60 of cash received for issuance of the warrant and $150 received for the exercise price). There are no basis differences between Company A’s investment and Subsidiary’s equity. There is no other existing noncontrolling interest.
How should Company A account for the freestanding written call option?
Analysis
In consolidation, Company A would record the following journal entries:
To record the issuance of the warrant
Dr. Cash
$60
Cr. Noncontrolling interest
$60
To record the exercise of the warrant
Dr. Cash
$150
Cr. Noncontrolling interest
$61 1
Cr. APIC
$89 2
1 Company A’s basis in Subsidiary’s equity after exercise of warrant
$1,210
Investor B’s ownership percentage
x 10%
Noncontrolling interest after exercise
121
Less: Noncontrolling interest prior to exercise
(60)
Increase in noncontrolling interest
$ 61
2 Subsidiary’s carrying amount of net assets after exercise
$1,210
Company A’s ownership percentage after exercise
x 90%
Company A’s ownership in Subsidiary’s net assets after exercise
1,089
Company A’s ownership investment in Subsidiary before exercise
(1,000)
Change in Company A’s ownership interest
$ 89
If the warrant was not exercised but expires, Company A would record the following entry to reclassify the premium received for the warrant in accordance with ASC 810-10-45-17A.
To account for the expiration of the warrant
Dr. Noncontrolling interest
$60
Cr. APIC
$60
Note that the change in interest calculation may be more complex if there is an existing noncontrolling interest prior to the issuance of the option, or if there is a basis difference between the parent’s investment in the subsidiary and the equity in the subsidiary’s separate financial statements.

5.4.2 Accounting for employee stock option issued by a subsidiary

An employee stock option issued by the subsidiary may be accounted for by the parent based on the grant date fair value of the option and recognized as NCI as the option vests. However, during the period the option is outstanding, no profit or loss of the subsidiary should be attributed to the NCI related to the option. This is because even though a portion of the profit or loss is compensation expense related to the NCI, until the option is exercised, the NCI related to the option is not an actual equity interest in the entity.
When the option is exercised, an adjustment should be made to NCI to reflect the proportionate share of the subsidiary’s equity, with a corresponding adjustment to APIC. Subsequent to exercise, a proportionate share of the profit or loss of the subsidiary business would be attributed to NCI. If the option vests but subsequently expires without exercise, the parent would record a reduction in the NCI and an increase to APIC for the amount previously recognized for the value of the award in accordance with ASC 810-10-45-23. See Example BCG 5-9 in BCG 5.4.1 for an illustration of the relevant journal entries, except that cash, rather than employee services, is received in Example BCG 5-9. When services are received as consideration, instead of a debit to cash and immediate recognition of NCI, the grant date fair value of the award would be recorded as compensation cost over the requisite service period, with a corresponding credit to NCI.
An alternative approach would be for the parent to recognize the employee stock option as a credit to APIC as the option vests. When the option is exercised, the newly issued shares would be reported as NCI at an amount equal to the proportionate share of the subsidiary’s equity with a corresponding offset to APIC.

5.4.3 NCI exchanged for controlling interest in another entity

If an entity issues a noncontrolling interest in its wholly-owned subsidiary that is a business in exchange for an interest in an unrelated entity and the interest obtained in the unrelated entity is a controlling interest, the transaction is accounted for as a business combination. The acquirer would record the assets acquired and liabilities assumed of the acquired entity in accordance with ASC 805-20-25-1. As part of the business combination, the acquirer would also measure the noncontrolling interest issued to the seller of the unrelated entity, which represents the consideration issued in the business combination, at its fair value.
As discussed in BCG 5.4, changes in ownership interests in a business that do not result in loss of control should be accounted for as equity transactions. Therefore, when an entity sells/exchanges a noncontrolling interest in its wholly-owned subsidiary, it creates a noncontrolling interest in that subsidiary which should be accounted for as an equity transaction. The noncontrolling interest would be reflected at the noncontrolling interest’s proportionate share of the net equity of the subsidiary, and no gain or loss would be recognized by the entity that relinquished the noncontrolling interest in its subsidiary. The acquirer's controlling interest in its existing subsidiary may need to be adjusted to reflect the change in ownership interest in the subsidiary, with a corresponding adjustment to APIC.
The noncontrolling interest in the acquirer's consolidated financial statements would comprise the sum of the noncontrolling interest’s share of the fair value in the acquired business and the noncontrolling interest’s share in the proportionate interest of the net equity of the subsidiary exchanged in the transaction.
Example BCG 5-10 illustrates the accounting for a transaction in which NCI in a subsidiary that is a business is exchanged for a controlling interest in another entity.
EXAMPLE BCG 5-10
Accounting for a transaction in which NCI in a subsidiary that is a business is exchanged for a controlling interest in another entity
Company A enters into a venture with Company X where each company will contribute a subsidiary, each representing a business, into a NewCo in a series of planned and integrated transactions. Company A forms the NewCo and transfers an existing subsidiary (Subsidiary A) into the NewCo. NewCo then issues 46% of its common shares to Company X in return for 100% of Company X’s subsidiary (Target). Company A maintains control of the NewCo with an ownership interest of 54%, and Company X owns 46%. Economically, this transaction is an exchange of 46% of Company A’s interest in Subsidiary A for a 54% controlling interest in Target.
Fair and book values for Target and Subsidiary A are as follows:
Target fair value
$690
Subsidiary A net equity
$300
Subsidiary A fair value
$810
How should Company A account for the transaction?
Analysis
Company A’s interest in NewCo would be equal to the sum of (1) 54% of its historical cost of Subsidiary A plus (2) 54% of the fair value of Target (which is equal to 46% of the fair value of Subsidiary A’s business). Company A’s retained interest in Subsidiary A’s business is recorded at carryover basis. In Company A’s consolidated financial statements, all of the assets and liabilities of Target would be recorded and measured in accordance with ASC 805. The noncontrolling interest of NewCo is the combination of the fair value of the noncontrolling interest in Target and the noncontrolling interest in the net equity of Subsidiary A’s business.
Company A would record net assets acquired of $690 (100% of Target’s fair value) and noncontrolling interest of $455 (46% of Target’s fair value of $690 plus 46% of the net equity of Subsidiary A of $300).
Company A would record the following journal entry to account for the acquisition:
Dr. Target net assets acquired
$690
Cr. Noncontrolling interest
$455
Cr. APIC—controlling interest
$2351
1The change in ownership interest is calculated in accordance with ASC 810-10-45-23 as follows:
NewCo equity before acquisition of Target
$300
NewCo equity issued to acquire Target
690
Total NewCo equity after acquisition of Target
$990
Company A’s ownership interest in NewCo after acquisition of Target
× 54%
Company A’s investment in NewCo after acquisition of Target
$535
Company A’s investment in NewCo before acquisition of Target
(300)
Change in Company A’s ownership interest in NewCo
$235

5.4.4 AOCI considerations (changes in ownership interest)

Comprehensive income or loss is allocated to the controlling interest and the NCI each reporting period. Upon a change in a parent’s ownership interest, the carrying amount of accumulated other comprehensive income (AOCI) is adjusted to reflect the change in the ownership interest in the subsidiary through a corresponding charge or credit to equity attributable to the parent in accordance with ASC 810-10-45-24. AOCI is reallocated proportionately between the controlling interest and the NCI. See Example 1, Case C: Change if Entity Has Accumulated Other Comprehensive Income, in ASC 810-10-55-4F for additional information.
Changes in ownership interest that do not result in a change of control should be accounted for as equity transactions. Example BCG 5-11 demonstrates the accounting for a reallocation of accumulated other comprehensive income upon a change in ownership that does not result in a change of control.
EXAMPLE BCG 5-11
Reallocation of accumulated other comprehensive income
Company A owns 80% of a subsidiary that is a business. Company A acquires an additional 10% of the subsidiary (i.e., 50% of the NCI) for $35 million in cash. The carrying value of the 20% NCI is $50 million, which includes $4 million of accumulated other comprehensive income.
How should Company A account for the acquisition of the additional 10% interest?
Analysis
A change in ownership interests of a business that does not result in a change of control is considered an equity transaction. The identifiable net assets remain unchanged, and any difference between the amount by which the NCI is adjusted and the fair value of the consideration paid is recognized directly in equity and attributed to the controlling interest [ASC 810-10-45-23].
The journal entry to record the acquisition of the 10% interest would be as follows (in millions):
Dr. NCI
$25 1
Dr. Equity/APIC
$10 2
Cr. Cash
$35
1 Elimination of the carrying value of the 10% NCI ($50 x 50%). This adjustment effectively includes $2 of accumulated other comprehensive income ($4 x 50%).
2 Consideration paid less the change in the carrying value of NCI ($35 – $25)
Company A would adjust the carrying value of the accumulated other comprehensive income to reflect the change in ownership through an adjustment to equity/APIC attributable to Company A.
Dr. Equity/APIC
$2 3
Cr. Accumulated other comprehensive income
$2 3
3 Reallocation of accumulated other comprehensive income to the controlling interest ($4 x 50%)

5.4.5 AOCI: disposal of business in consolidated foreign entity

A parent may sell a group of assets that constitute a business within a consolidated foreign entity while retaining ownership of the foreign entity. Alternatively, the group of assets may be sold directly by the foreign entity.
ASC 830-30 provides for the release of the cumulative translation adjustment (CTA) into earnings upon sale or upon complete or substantially complete liquidation of an investment in an entire foreign entity. ASC 810-10 requires a parent to deconsolidate a subsidiary, or derecognize a group of assets that is a business, including CTA, as of the date the parent ceases to have a controlling financial interest in that subsidiary or group of assets. ASC 810-10-40-4A clarifies that a parent should follow the guidance in ASC 830-30 and release CTA to earnings only when a disposal of a subsidiary or group of assets that constitutes a business within the foreign entity represents a complete or substantially complete liquidation of the foreign entity. The determination of what constitutes a foreign entity is based on the definition found in ASC 830. See FX 1.1 for additional information.
Example BCG 5-12 demonstrates the accounting for CTA in a foreign entity under ASC 830-30 and ASC 810-10 when a group of assets which qualifies as a business is disposed.
EXAMPLE BCG 5-12
Disposal of a foreign entity—release of CTA in a foreign entity into earnings
Company A owns 100% of two branches (X and Y). Branch X and branch Y are individual businesses with different functional currencies and are reported to Company A separately and translated directly into Company A’s group consolidation. For this example, branch X is considered a distinct and separable foreign entity (see FX 2 for further information).
Company A’s carrying amount of branch X is $20 exclusive of a credit balance of $2 for CTA related to branch X. Company A disposes of branch X for $24 in cash, which is remitted to Company A.
How should Company A account for the disposal of foreign entity branch X?
Analysis
Under ASC 360-10-40-5, a gain is recognized on the disposal of a business for the amount received that is greater than the carrying amount of the business. Under ASC 830-30 and ASC 810-10, as the disposal of the business represents a complete liquidation of the foreign entity, CTA should be released into earnings.
Company A’s journal entry to record the disposal of branch X would be as follows (in millions):
Dr. Cash
$24
Dr. Accumulated other comprehensive income
$ 2 1
Cr. Disposal group of assets
$20 2
Cr. Gain on disposal of net assets
$ 6 3
1 CTA attributable to branch X
2 Carrying amount of disposal group of assets that constitutes a business, exclusive of CTA
3 Sum of the gain on disposal of the group assets ($24 – $20 = $4) and the portion of CTA released into earnings ($2).
If branch X and branch Y had the same functional currency and were considered a single foreign entity based on ASC 830-30, the disposal of the business would not represent a complete or substantially complete liquidation of the foreign entity (assuming each branch is approximately the same size). As such, no CTA would be released into earnings.

If a parent sells a noncontrolling interest in a foreign subsidiary that does not result in a loss of control, the transaction would not constitute a complete or substantially complete liquidation of an investment in an entire foreign entity. Therefore, the parent would not release any related CTA to earnings. However, AOCI would be reallocated proportionately between the controlling interest and the NCI, as described in BCG 5.4.4.

5.4.6 Acquisition of an NCI through a business combination

A change in a parent’s ownership interest in an entity that is a business where control is maintained is accounted for as an equity transaction in accordance with ASC 810-10-45-23. When an additional noncontrolling interest is obtained indirectly through the acquisition of a controlling interest in another entity, which owns the noncontrolling interest, the transaction should be accounted for as two separate transactions.
Example BCG 5-13 demonstrates the accounting for the acquisition of a controlling interest in an entity and indirectly obtaining an additional interest in a controlled entity.
EXAMPLE BCG 5-13
Acquisition of additional noncontrolling interest in a business through a business combination
Company A owns a 90% controlling interest in Subsidiary B that is a business. Company C holds the 10% noncontrolling interest with a carrying value of $70 million in Company A’s consolidated financial statements and a fair value of $100 million. Company A acquires Company C in a business combination for $1,000 million, which includes the indirect acquisition of the noncontrolling interest in Subsidiary B for $100 million.
How should Company A account for the acquisition of additional noncontrolling interest?
Analysis
The accounting for the acquisition of Company C and the acquisition of the noncontrolling interest in Subsidiary B should be treated as separate transactions. The consideration transferred would be allocated between the business acquired and the purchase of the noncontrolling interest based on their fair values. The fair value of the consideration transferred would be allocated to the fair value of the acquired business of $900 million and the fair value of the noncontrolling interest in Subsidiary B of $100 million.
Through this transaction, Company A obtained an additional interest in and maintained control of Subsidiary B. A change in ownership interest that does not result in a change of control is considered an equity transaction. The identifiable net assets of Subsidiary B remain unchanged and the $30 million excess amount paid over the carrying amount of the noncontrolling interest in Subsidiary B in Company A’s financial statements would be recorded in equity in accordance with ASC 810-10-45-23.
Company A would also recognize and measure the other identifiable assets acquired and liabilities assumed of Company C at the acquisition date, generally at fair value. In this example, it is assumed that there is no excess between the net value of the assets and liabilities acquired and the consideration paid that would need to be recorded as goodwill or shortfall that would be recorded as a bargain purchase gain.
Company A would record the following journal entry to account for the transaction (in millions):
Dr. Identifiable net assets of Company C
$900
Dr. Noncontrolling interest of Subsidiary B
$70 1
Dr. Equity/APIC
$30 2
Cr. Cash
$1,000
1 Elimination of the carrying value of the 10% NCI on Company A’s books
2 Consideration paid for the NCI less the carrying value of NCI ($100 – $70)

5.4.7 Changes in ownership interest in a VIE

After initial measurement, the assets, liabilities, and the NCI of a consolidated VIE will be accounted for in the consolidated financial statements as if the entity were consolidated based on voting interests in accordance with ASC 810-10-35-3. A primary beneficiary’s acquisition or disposal of additional ownership interests in the VIE (while remaining the primary beneficiary) is accounted for in the same manner as the acquisition or disposal of additional ownership interests (where control is maintained) in a voting interest entity. Therefore, subsequent acquisitions or sales of additional ownership interests by the primary beneficiary that do not result in a change in the primary beneficiary are accounted for as equity transactions.
A primary beneficiary’s acquisition or disposal of additional ownership interests is a reconsideration event that requires a reassessment of whether the entity is a VIE and whether the party designated as the primary beneficiary has changed because the accounting as described above is applicable only if the primary beneficiary remains the same (i.e., control is maintained). See CG 4.8 for further discussion of VIE reconsideration events.
The carrying amount of the NCI is adjusted to reflect the primary beneficiary’s change in interest in the VIE’s net assets. Any difference between the amount by which the NCI is adjusted and the fair value of the consideration transferred is recognized in equity (APIC) and attributed to the equity holders of the primary beneficiary.

5.4.8 Acquisition of additional NCI with contingent consideration

In certain situations, the acquisition of additional ownership interests by a parent may involve contingent consideration payable to the selling (noncontrolling) shareholders. ASC 810-10-45-23 does not address the recognition and measurement of contingent consideration arrangements in a transaction when control is maintained. As such, the parent should consider other guidance to determine how to recognize and measure such contingent consideration arrangements.
First, the contingent consideration arrangement should be assessed to determine whether it should be accounted for as a derivative under ASC 815, Derivatives and Hedging, or as compensation under ASC 710, Compensation – General. See BCG 2.6.4 for additional information in evaluating whether contingent consideration arrangements should be accounted for as a derivative or compensation.
Diversity in practice exists for both the initial recognition and subsequent measurement for contingent consideration arrangements not accounted for as a derivative or compensation. We believe the parent may make an accounting policy election for both the initial recognition and subsequent measurement of the contingent consideration arrangement by analogy to other guidance. Acceptable methods include:
  • Analogize to ASC 805-30, or the business combinations model, with the contingent consideration recognized at fair value within equity as of the acquisition date. Under this model, subsequent changes in the fair value of contingent consideration recognized may be either (1) recorded through earnings each reporting period until settlement based on the guidance in ASC 805-30, or (2) reflected directly within equity based on the guidance in ASC 810-10-45-23.
  • Analogize to the model applied for asset acquisitions, with the amount of contingent consideration recognized in equity when probable and reasonably estimable or when the contingency is resolved and payable. Under this model, subsequent changes in contingent consideration should be recognized directly in equity based on the guidance in ASC 810-10-45-23. See PPE 2.3.3 for additional information.
Once an accounting policy is elected, the parent should apply this accounting policy on a consistent basis to similar transactions.

5.4.9 Transaction costs associated with purchase or sale of NCI

Transaction costs associated with the purchase or sale of a noncontrolling interest in a subsidiary when control is maintained are treated similar to those incurred in a treasury stock or capital raising transaction; they are accounted for as an equity transaction in accordance with ASC 810-10-45-23. When an entity reacquires its own equity instruments, consideration paid is recognized in equity and transaction costs are accounted for as a deduction from equity under ASC 505-30-30-7. Additionally, incremental and directly attributable costs to issue equity instruments are accounted for as a deduction from equity under ASC 340-10-S99-1. Other transaction costs (e.g., general and administrative costs) should be expensed as incurred.
We understand that the SEC has allowed companies to elect an accounting policy to record all transaction costs as an expense in the statement of operations by analogy to the treatment of transaction costs in a business combination.

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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