Consolidation Rules for Sole General Partner LPs & LLPs | AccountingWEB

Consolidation Rules for Sole General Partner LPs & LLPs

In its comments on EITF Issue No. 04-5, “Investor’s Accounting for an Investment in a Limited Partnership When the Investor Is the Sole General Partner and the Limited Partners Have Certain Right,” TIC noted that the title should be revised to clarify it also covers entities that are equivalent to limited partnerships, such as LLCs. The proposed standard discusses three types of rights: kick-out rights (as used in FASB’s FIN 46R), participatory rights and protective rights. In general, if the limited partners have either kick-out rights or participatory rights, the general partner would not consolidate. Otherwise, it is presumed that the general partner is required to consolidate the LLP. TIC asked for clarification of the protective versus participatory right, especially when it comes to approval of the acquisition and disposal of assets. TIC also commended the EITF for writing the guidance in plain English. More information can be found at the FASB web site.
Note: FASB has simultaneously issued FSP SOP 78-9-a to amend SOP 78-9, Accounting Investments in Real Estate Ventures, to be consistent with the conclusions in EITF Issue No. 04-5. More information can be found at the FASB web site

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