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An investor should reassess, on an ongoing basis, whether it has lost control of an investee.
An investor may lose a controlling financial interest over the investee but retain a noncontrolling investment in common stock or in-substance common stock that gives it significant influence over that investee entity. In such situations the investor should apply the equity method to its retained interest.
Change of interest transactions that result in the investor losing control generally result in the recognition of a gain or loss in net income for the sale of the controlling interest and the remeasurement of any retained noncontrolling investment at fair value. See BCG 5.5 for a discussion of change in interest transactions that result in a loss of control. If the controlling interest is a nonfinancial asset or in substance a nonfinancial asset as described in PPE 6.2.2.5, then the criteria described in PPE 6.2.4 must also be met before the investee may be deconsolidated.
When an investor applies the equity method to a retained interest in a previously consolidated investee, the fair value of the retained interest forms the basis for the initial measurement. Basis differences arise if the fair value of the investment differs from the investor’s proportionate share in the carrying amount of the investee’s net assets.
When changing from consolidation to the equity method, the investee is consolidated until the point when control is lost, and the equity method is applied from that point forward.
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