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5.2 Accounting for changes in ownership interest
Publication date: 30 Nov 2022
us Business combinations guide
A partial acquisition of a business occurs when a company obtains control through the acquisition of less than 100% of the equity interests of an entity. Step acquisitions occur when a company acquires equity interests in a business over a period of time in a series of transactions through which the company eventually obtains control of the business.
When a company obtains additional interests in a business or sells a portion of its interest in a business, the accounting results vary depending upon whether the company continues to control the business.
A summary of the types of changes in ownership interest in a business and the accounting impact on the financial statements is included in Figure BCG 5-1. Each is described in more detail in BCG 5.3 through BCG 5.5. In addition, refer to Figure CG 1-4 in CG 1.4.2.3, which summarizes the accounting for changes in ownership interest beyond that discussed within the scope of this chapter.
Note that Figure BCG 5-1 does not address asset acquisitions or the acquisition of a VIE that is not a business. For guidance on the accounting for an acquisition or disposal of an asset or group of assets that does not constitute a business, refer to PPE 2 and PPE 6, respectively.
Figure BCG 5-1
Summary of accounting for changes in ownership interests in businesses
Summary of accounting for changes in ownership interests in businesses
Change in ownership interest | Impact |
|---|---|
Partial acquisition: control is obtained, but less than 100% of business is acquired
| Consolidate as of date control is obtained
Recognize 100% of identifiable assets, liabilities, and goodwill
Recognize the NCI at fair value in equity
|
Step acquisition: control is obtained when there is a previously held equity interest
| Consolidate as of date control is obtained
Remeasure the previously held equity interest to fair value and recognize any difference between the fair value and carrying value, if any, as a gain or loss in income
Recognize 100% of the identifiable assets, liabilities, and goodwill
If less than 100% acquired, recognize the NCI at fair value in equity
|
Additional interest obtained (or reduction in parent’s ownership interest)1: control is maintained
| Account for as an equity transaction
Do not recognize a gain or loss in the income statement
Recognize the difference between the fair value of the consideration paid (received) and the related carrying value of the NCI acquired (sold) in the controlling entity’s equity/APIC
Reclassify the carrying value of the NCI obtained from the NCI to the controlling entity’s equity (reclassify the carrying value of the controlling interest sold from the controlling entity’s equity to the NCI)
|
Reduction in parent’s ownership interest: control to noncontrolling investment 2
| Deconsolidate investment
Remeasure any retained noncontrolling investment at fair value 3
Recognize the gain or loss on interest sold and the gain or loss on the retained noncontrolling investment in the income statement
|
1A parent’s ownership interest in a subsidiary might change while the parent retains control, including when (1) a parent purchases additional interest in a subsidiary (sells part of its interest in its subsidiary) or (2) the subsidiary reacquires some of its shares, thereby increasing the parent’s ownership interest in the subsidiary (issues shares, thereby reducing the parent’s ownership in the subsidiary). See ASC 810-10-45-22.
2Loss of control by a parent may occur in different ways, including when (1) a parent sells all or part of its interest in its subsidiary; (2) a contractual agreement that gave control of the subsidiary to the parent expires; (3) control is obtained by another party through a contract; (4) the subsidiary issues shares, thereby reducing the parent’s ownership in the subsidiary; or (5) the subsidiary becomes subject to the control of a government, court, administrator, or regulator. See ASC 810-10-40-4 and ASC 810-10-55-4A.
3If the reduction in parent’s ownership interest and loss of control is achieved via a spinoff, refer to ASC 845-10-30-10 and ASC 505-60 (see PPE 6.3.2).
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