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The ownership interest of an investor may increase when it purchases additional shares from a third party, or as a result of capital transactions undertaken by an investee. Additionally, an investor may gain significant influence or control of an investee, such as when there is an amendment to the agreements governing the arrangement. Figure EM 5-1 outlines the possible scenarios that can occur when the proportional ownership interest of an investor increases, or the investor gains significant influence or control.
Figure EM 5-1
Accounting for an increase in ownership or influence in an investee
Change in interest
Impact to investor
Discussed in
Prior accounting:
Fair value or measurement alternative (ASC 321)
New accounting:
Equity method (ASC 323)
Assuming fair value option not elected:
  • Recognize investment at investor’s current basis of previously held interests plus cost of incremental investment, if any.
  • Determine basis differences for the entire investment.
Prior accounting:
Equity method (ASC 323)
New accounting:
Continue to apply equity method (ASC 323)
Recognize cost for incremental investment (cost accumulation), determine basis differences arising on acquisition of new “step” interest using fair values of underlying investee assets and liabilities on the acquisition date.
Prospectively recognize investor’s share of equity investee’s earnings based on new ownership interest, adjusted for the effects of new and previous basis differences, and other items.
Prior accounting:
Equity method (ASC 323)
Future accounting:
Consolidate (ASC 810)
Remeasure the previously-held equity method investment (and any other previously-held interests) at fair value and recognize any difference to the carrying amount in net income.
Recognize 100% of identifiable assets and liabilities, including the:
  • recognition of NCI, if any, at fair value
  • recognition of 100% of goodwill or bargain purchase gain
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