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Figure CG 1-5 summarizes the accounting for changes in interest.
Figure CG 1-5
Overview of changes in interest
Change in interest
Accounting result
Impact to investor’s financial statements
Discussed in
No existing investment. Acquisition of less than 100% of business acquired (partial acquisition)
Gain control
Consolidate as of the date control is obtained
Recognize the NCI in equity
Recognize 100% of identifiable assets and liabilities
Recognize the NCI at fair value
Recognize 100% of goodwill
Fair value (or measurement alternative ) to consolidation of a business (step acquisition)
Gain control
Eliminate previously held equity interest and consolidate as of the date control is obtained
Recognize a gain or loss, if any, on a previously held equity interest in the income statement
If less than 100% acquired, recognize the NCI in equity
Recognize 100% of identifiable assets and liabilities
Remeasure the previously held equity interest to fair value and recognize any difference between fair value and carrying value, if any, as a gain or loss in net income
Recognize 100% of goodwill
If less than 100% interest is acquired:
  • Recognize the NCI at fair value
  • Recognize 100% of goodwill or bargain purchase gain
Equity method to consolidation
Gain control
Cease applying equity method and eliminate previously held equity interest; consolidate as of the date control is obtained
Recognize the NCI in equity if less than 100% obtained
Remeasure the previously held equity method investment to fair value and recognize any difference between fair value and carrying value in net income
Recognize 100% of identifiable assets and liabilities
  • Recognize the NCI, if any, at fair value
  • Recognize 100% of goodwill or bargain purchase gain
Consolidation to consolidation (acquisition of interest)
Change of interest
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 and the related carrying value of the NCI acquired in the controlling entity’s equity
Reclassify the carrying value of the NCI obtained from the NCI to the controlling entity’s equity
Consolidation to consolidation (sale of interest)
Change of interest
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 received and the related carrying value of the controlling interest sold in the controlling entity’s equity
Reclassify the carrying value of the controlling interest sold from the controlling entity’s equity to the NCI
Fair value (or measurement alternative1) to equity method
Significant influence (control not obtained)
May elect the fair value option
Assuming the fair value option is not elected:
  • Determine basis differences for entire investment
  • Recognize investment at investor’s current basis of previously held interests plus cost of incremental investment, if any.
Consolidation to equity method
Loss of control but obtain/ retain significant influence – due to sale or dilution of interest
Cease consolidation accounting from the date control is lost. Apply equity method prospectively (not a change in accounting principle); may elect the fair value option
The same accounting guidance applies to the loss of control of a subsidiary that is a VIE or voting interest entity
Deconsolidate investment and remeasure retained investment (noncontrolling interest) at fair value. Gain or loss recognized in net income
Assuming fair value option not elected:
  • Retained investment (remeasured at fair value) forms initial cost basis of equity method investment. Determine basis differences.
  • Prospectively recognize investor’s share of equity investee’s earnings based on retained interest, adjusted for the effects of basis differences, and other items
Consolidation to fair value (or measurement alternative1) or no retained interest
Loss of control, and no longer hold significant influence
Change classification and measurement of investment
Cease consolidation accounting and begin accounting for investment under other applicable guidance
Recognize gain or loss on disposal and gain or loss on the retained noncontrolling investment in the income statement
The same accounting guidance applies to the loss of control of a subsidiary that is a VIE or voting interest entity
Deconsolidate investment
Remeasure any retained noncontrolling investment at fair value
Recognize gain or loss on interest sold and gain or loss on the retained noncontrolling investment in the income statement

1For equity securities without readily determinable fair value, ASC 321 allows measurement at cost minus impairment, if any, plus or minus changes resulting from observable price changes.

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