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A Roadmap to Accounting for Noncontrolling Interests

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A Roadmap to Accounting for Noncontrolling Interests A Roadmap to Accounting for Noncontrolling Interests July 2020 The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, and is reproduced with permission. This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances. As used in this document, “Deloitte” means Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Tax LLP, and Deloitte Financial Advisory Services LLP, which are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Copyright © 2020 Deloitte Development LLC. All rights reserved. ii Publications in Deloitte’s Roadmap Series Business Combinations Business Combinations — SEC Reporting Considerations Carve-Out Transactions Comparing IFRS Standards and U.S. GAAP Consolidation — Identifying a Controlling Financial Interest Contingencies and Loss Recoveries Contracts on an Entity’s Own Equity Convertible Debt Current Expected Credit Losses Disposals of Long-Lived Assets and Discontinued Operations Distinguishing Liabilities From Equity Earnings per Share Environmental Obligations and Asset Retirement Obligations Equity Method Investments and Joint Ventures Equity Method Investees — SEC Reporting Considerations Fair Value Measurements and Disclosures Foreign Currency Transactions and Translations Income Taxes Initial Public Offerings Leases Noncontrolling Interests Non-GAAP Financial Measures Revenue Recognition SEC Comment Letter Considerations, Including Industry Insights Segment Reporting Share-Based Payment Awards Statement of Cash Flows iii Acknowledgments Rob Comerford and Andrew Winters oversaw the development of the inaugural (2017) edition of this publication under the leadership of Brandon Coleman. Andrew Pidgeon led the preparation of this 2020 edition under the guidance of Andrew Winters. Andrew P. and Andrew W. are grateful for the meaningful contributions of Alison Hefele and Jack Widmann to this edition. They also wish to extend their appreciation to Teri Asarito, Sandy Cluzet, Geri Driscoll, David Eisenberg, and David Frangione for delivering the first-class editorial and production effort that we have come to rely on. iv Contents Preface x Contacts xi Chapter 1 — Overview 1 1.1 Scope 1 1.2 IntercompanyMattersWithNoncontrollingInterestImplications 1 1.3 InitialRecognitionandMeasurementofNoncontrollingInterests 2 1.4 AttributionofIncome,OtherComprehensiveIncome,andCumulativeTranslation AdjustmentBalances 2 1.5 ChangesinaParent’sOwnershipInterest 3 1.6 PresentationandDisclosure 4 1.7 RedeemableNoncontrollingInterests 4 Chapter2—GlossaryofSelectedTerms 6 2.1 AccretionMethod 6 2.2 ASC480MeasurementAdjustment 6 2.3 ASC480OffsettingEntry 6 2.4 ASC810-10AttributionAdjustment 6 2.4A ASC810-10CarryingAmount 7 2.5 Attribution 7 2.6 BasePortionoftheASC480MeasurementAdjustment 7 2.7 BusinessCombination 7 2.8 ControllingFinancialInterest 7 2.9 DownstreamTransaction 8 2.10 EquityInterests 8 2.11 ExcessPortionoftheASC480MeasurementAdjustment 8 2.12 FairValue 8 2.13 ForeignEntity 9 2.14 Goodwill 9 2.15 HypotheticalLiquidationatBookValue 9 2.16 ImmediateMethod 9 2.17 NoncontrollingInterest 9 2.18 Parent/NoncontrollingInterestAttributionMethod 9 2.19 Parent-OnlyAttributionMethod 10 v 2.20 PrimaryBeneficiary 10 2.21 ReciprocalInterests 10 2.22 RedeemableNoncontrollingInterest 10 2.23 ReportingEntity 10 2.24 SECRegistrant 11 2.25 SimultaneousEquationsMethod 11 2.26 Subsidiary 11 2.27 TreasuryStockMethod 11 2.28 UpstreamTransaction 11 2.29 VariableInterestEntity 12 2.30 VariableInterests 12 Chapter3—Scope 13 3.1 PortionofaSubsidiaryNotAttributabletotheParent 14 3.1.1 Noncontrolling Interest in a Subsidiary Owned by the Parent or Affiliate of a Reporting Entity 15 3.2 OnlyEquityInterestsCanBeNoncontrollingInterests 18 3.2.1 Other Equity Interests — Carried Interests or Profits Interests 20 Chapter4—IntercompanyMattersWithNoncontrollingInterestImplications 21 4.1 MultipleLegalEntitiesRepresentingaSingleReportingEntity 21 4.1.1 Parent and Subsidiary With Different Fiscal-Year-End Dates 21 4.1.2 Parent and Subsidiary Accounting Policies 22 4.2 TransactionsBetweenParentandSubsidiary 22 4.2.1 Intercompany Transactions 22 4.2.2 Intercompany Ownership Interests 23 4.2.2.1 Subsidiary’s Ownership Interest in Parent (Reciprocal Interests) — Subsidiary Reporting 23 4.2.2.2 Subsidiary’s Ownership Interest in Parent (Reciprocal Interests) — Consolidated Reporting 24 4.3 CapitalizationofRetainedEarningsbyaSubsidiary 25 Chapter5—InitialRecognitionandMeasurement 26 5.1 InitialMeasurementofNoncontrollingInterestsWhenaReportingEntityFirstConsolidates aPartiallyOwnedSubsidiary 27 5.1.1 Noncontrolling Interests Recognized Concurrently With a Business Combination 27 5.1.2 Noncontrolling Interests Recognized Concurrently With an Asset Acquisition 27 5.1.3 Initial Measurement of Noncontrolling Interests When an Acquired Subsidiary Has Retained Earnings or a Deficit 27 5.2 NoncontrollingInterestsRecognizedWhentheReportingEntitySellsSharesinaWholly OwnedSubsidiaryandRetainsControl 28 5.3 OtherConsiderationsRelatedtotheInitialRecognitionofaNoncontrollingInterest 29 5.3.1 Accounting for the Issuance of a Noncontrolling Interest With Ownership Tax Benefits 29 5.3.1.1 Separating the Benefits of Tax Credits From the Substantive Noncontrolling Interest 29 vi Contents Chapter6—AttributionofIncome,OtherComprehensiveIncome,andCumulative TranslationAdjustmentBalances 31 6.1 AttributionsDisproportionatetoOwnershipInterests 32 6.1.1 Application of the HLBV Method as a Means to Attribute (Comprehensive) Income and Loss 33 6.1.2 Financial Reporting Requirements of Other Codification Topics That Affect Attributions 41 6.1.2.1 Business Combinations Consummated Before the Effective Date of FASB Statement 141(R) (Codified in ASC 805-10) 41 6.1.2.2 Business Combinations Consummated After the Effective Date of ASC 805-10 42 6.1.3 Attribution of Income in Carried Interest Arrangements 43 6.2 AttributionofLossesinExcessofCarryingAmount 45 6.3 AttributionofEliminatedIncomeorLoss(OtherThanVIEs) 49 6.3.1 Eliminating Profit (Loss) on Downstream Transactions 51 6.3.2 Eliminating Profit (Loss) on Upstream Transactions 56 6.4 AttributionofEliminatedIncomeorLoss(VIEs) 65 6.5 AttributionofIncomeinthePresenceofReciprocalInterests 68 6.6 AttributionofOtherComprehensiveIncomeorLoss 70 6.6.1 Impact of FASB Statement 160 Transition Method on Attribution of OCI in Subsequent Periods 70 6.6.2 Foreign Currency Translation Adjustments 73 6.6.3 Impact of Changes to OCI or AOCI Resulting From Transition Adjustments or Changes in Accounting Principle 74 6.7 PresentationofPreferredDividendsofaSubsidiary 77 6.7.1 Noncontrolling Interests Held by Preferred Shareholders 78 6.8 NoncontrollingInterestsinPass-ThroughEntities—IncomeTaxFinancialReporting Considerations 80 6.9 CalculationofEarningsperShareWhenThereIsaNoncontrollingInterest 81 6.10 AdoptionofaNewAccountingStandard 81 Chapter7—ChangesinaParent’sOwnershipInterest 82 7.1 ChangesinaParent’sOwnershipInterestWithoutanAccompanyingChangeinControl 82 7.1.1 Scope Limitations for Certain Decreases in Ownership Without an Accompanying Change in Control 83 7.1.1.1 Noncontrolling Interests Arising From Transfers of Real Estate Accounted for as a Profit-Sharing Arrangement 86 7.1.1.2 Transfer of Equity Interests in a Subsidiary Holding Financial Assets 88 7.1.2 Model of Accounting for Changes in a Parent’s Ownership Interest in a Subsidiary While the Parent Maintains Control 89 7.1.2.1 Parent’s Acquisition of Interests in Subsidiary Directly From Third Party 91 7.1.2.2 Subsidiary’s Direct Acquisition of Its Equity Interests 92 7.1.2.3 Additional Ownership Interest Obtained Through a Business Combination 93 7.1.2.4 Acquisition of Additional Ownership Interests in a Subsidiary When the Parent Obtained Control Before Adopting FASB Statement 160 94 7.1.2.5 Parent’s Selling of Interests in a Subsidiary Directly to a Noncontrolling Interest Holder 95 vii Deloitte | A Roadmap to Accounting for Noncontrolling Interests (2020) 7.1.2.6 Subsidiary’s Direct Issuance of Its Equity Interests to Third Parties 96 7.1.2.7 Special Considerations Related to Transactions Involving Changes in Ownership of Preferred Shares in a Subsidiary 99 7.1.2.8 Accounting for Costs Related to Equity Transactions With Noncontrolling Interest Holders 100 7.1.3 Accounting for the Tax Effects of Transactions With Noncontrolling Shareholders 101 7.2 ChangesinaParent’sOwnershipInterestWithanAccompanyingChangeinControl 103 Chapter8—PresentationandDisclosure 104 8.1 Overview 104 8.2 BalanceSheetPresentation 105 8.3 PresentationofIncomeandComprehensiveIncome
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