FAS 160 amends ARB 51 to establish rules for a non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends some of the consolidation procedures to agree with the business combination statement, FAS 141R.
This statement is effective for fiscal years beginning after December 15, 2008 and is to be adopted prospectively.
Changes in Consolidation Rules
When a subsidiary is initially consolidated during the year, the consolidated financial statements will include the subsidiary’s revenues, expenses, gains, and losses only from the date the subsidiary is initially consolidated. The other alternative methods are no longer allowed.
Shares of the parent held by the subsidiary are not treated as outstanding but should be reflected as treasury shares.
>font color="purple">Non-controlling Interests (Minority Interests)
A non-controlling interest is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. The non-controlling interest in a subsidiary is part of the equity of the consolidated group.
A major change with this Statement is the requirement that the non-controlling interest contribute to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance. Prior guidance had any losses being charged against the majority interest.
A Company will need to disclose pro forma consolidated net income attributable to the parent and pro forma earnings per share if an entity’s consolidated net income would have been significantly different had the previous guidance been applied. In other words, if the new rules change net income significantly, the old rules should be presented in the notes with a pro forma income statement.
The non-controlling interest is to be reported in the consolidated statement of financial position within equity, separately from the parent’s equity. A Company with non-controlling interest in more than one subsidiary can present all the non-controlling interests in aggregate.
A financial instrument issued by a subsidiary that is classified as a liability in the subsidiary’s financial statement is not a non-controlling interest because it is not an ownership interest.
Revenues, expenses, gains, losses, net income or loss and other comprehensive income is to be reported at the consolidated amounts which includes both the parent and non-controlling amounts. The amount attributable to the non-controlling interest is then shown as a deduction from net income on the income statement.
Income from continuing operations xxx
Income tax expense xxx
Net income xxx
Less: Net income attributable
to the non-controlling interest xxx)
Net income attributable to parent xxx
Changes in a parent’s ownership interest while the parent retains its controlling interest in its subsidiary will be accounted for as equity transaction and therefore no gain or loss is recognized in consolidated net income or comprehensive income. Any difference between the fair value of the consideration received or paid and the amount by which the non-controlling interest is adjusted is to be recognized in equity.
Deconsolidation of a Subsidiary
A parent will deconsolidate a subsidiary as of the date the parent ceases to have a controlling interest in the subsidiary. If a parent deconsolidates a subsidiary through a non-reciprocal transfer to owners, such as a spin-off, the accounting guidance in APB Op. 29, Accounting for Non-monetary Transactions, applies. Otherwise any gain or loss is recognized in net income.
This gain or loss is measured as the:
a) the aggregate of the fair value of any consideration received, the fair value of any retained investment in the former subsidiary, and the carrying amount of any non-controlling interest in the former subsidiary less
b) the carrying amount of the former subsidiary’s assets and liabilities.
Appendix B of FAS 160 has several examples that help explain the new provisions, so check them out if you have questions.
There are several disclosures that are to be applied retrospectively. These will be in a forthcoming blog. Soon.