Appendix F — Deconsolidation/Derecognition

F.1 Introduction

ASC 810-10

40-3A The deconsolidation and derecognition guidance in this Section applies to the following:

A subsidiary that is a nonprofit activity or a business, except for either of the following:
1. Subparagraph superseded by Accounting Standards Update No. 2017-05.
2. A conveyance of oil and gas mineral rights (for guidance on conveyances of oil and gas mineral rights and related transactions, see Subtopic 932-360)
3. A transfer of a good or service in a contract with a customer within the scope of Topic 606.
A group of assets that is a nonprofit activity or a business, except for either of the following:
1. Subparagraph superseded by Accounting Standards Update No. 2017-05.
2. A conveyance of oil and gas mineral rights (for guidance on conveyances of oil and gas mineral rights and related transactions, see Subtopic 932-360)
3. A transfer of a good or service in a contract with a customer within the scope of Topic 606.
A subsidiary that is not a nonprofit activity or a business if the substance of the transaction is not addressed directly by guidance in other Topics that include, but are not limited to, all of the following:
1. Topic 606 on revenue from contracts with customers
2. Topic 845 on exchanges of nonmonetary assets
3. Topic 860 on transferring and servicing financial assets
4. Topic 932 on conveyances of mineral rights and related transactions
5. Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets.

40-3B Paragraph superseded by Accounting Standards Update No. 2017-05.

40-4 A parent shall deconsolidate a subsidiary or derecognize a group of assets specified in paragraph 810-10-40-3A as of the date the parent ceases to have a controlling financial interest in that subsidiary or group of assets. See paragraph 810-10-55-4A for related implementation guidance.

40-4A When a parent deconsolidates a subsidiary or derecognizes a group of assets within the scope of paragraph 810-10-40-3A, the parent relationship ceases to exist. The parent no longer controls the subsidiary’s assets and liabilities or the group of assets. The parent therefore shall derecognize the assets, liabilities, and equity components related to that subsidiary or group of assets. The equity components will include any noncontrolling interest as well as amounts previously recognized in accumulated other comprehensive income. If the subsidiary or group of assets being deconsolidated or derecognized is a foreign entity (or represents the complete or substantially complete liquidation of the foreign entity in which it resides), then the amount of accumulated other comprehensive income that is reclassified and included in the calculation of gain or loss shall include any foreign currency translation adjustment related to that foreign entity. For guidance on derecognizing foreign currency translation adjustments recorded in accumulated other comprehensive income, see Section 830-30-40.

40-5 If a parent deconsolidates a subsidiary or derecognizes a group of assets through a nonreciprocal transfer to owners, such as a spinoff, the accounting guidance in Subtopic 845-10 applies. Otherwise, a parent shall account for the deconsolidation of a subsidiary or derecognition of a group of assets specified in paragraph 810-10-40-3A by recognizing a gain or loss in net income attributable to the parent, measured as the difference between:

The aggregate of all of the following:
1. The fair value of any consideration received
2. The fair value of any retained noncontrolling investment in the former subsidiary or group of assets at the date the subsidiary is deconsolidated or the group of assets is derecognized
3. The carrying amount of any noncontrolling interest in the former subsidiary (including any accumulated other comprehensive income attributable to the noncontrolling interest) at the date the subsidiary is deconsolidated.
The carrying amount of the former subsidiary’s assets and liabilities or the carrying amount of the group of assets.

40-6 A parent may cease to have a controlling financial interest in a subsidiary through two or more arrangements (transactions). Circumstances sometimes indicate that the multiple arrangements should be accounted for as a single transaction. In determining whether to account for the arrangements as a single transaction, a parent shall consider all of the terms and conditions of the arrangements and their economic effects. Any of the following may indicate that the parent should account for the multiple arrangements as a single transaction:

They are entered into at the same time or in contemplation of one another.
They form a single transaction designed to achieve an overall commercial effect.
The occurrence of one arrangement is dependent on the occurrence of at least one other arrangement.
One arrangement considered on its own is not economically justified, but they are economically justified when considered together. An example is when one disposal is priced below market, compensated for by a subsequent disposal priced above market.

Before applying the guidance in ASC 810-10-40, a reporting entity should perform an assessment under ASC 810-10 to determine whether it has a controlling financial interest in a subsidiary or group of assets. Once the reporting entity determines that it has lost a controlling financial interest, the guidance in ASC 810-10-40 on deconsolidation of the subsidiary or derecognition of the group of assets should be applied.

Accordingly, under ASC 810-10-40-4, a parent should generally deconsolidate a subsidiary or derecognize a group of assets as of the date the parent ceases to have a controlling financial interest in that subsidiary or group of assets. Upon loss of control, the parent should derecognize the assets, liabilities, and equity components related to the subsidiary or group of assets. However, as discussed in Section F.2, there are certain exceptions to applying the ASC 810 deconsolidation and derecognition principles.

ASC 810-10-55-4A provides the following four examples of events that would result in a change that causes a parent to deconsolidate its subsidiary:

“A parent sells all or part of its ownership interest in its subsidiary and, as a result, the parent no longer has a controlling financial interest in the subsidiary.”
“The expiration of a contractual agreement that gave control of the subsidiary to the parent.”
“The subsidiary issues shares, which reduces the parent’s ownership interest in the subsidiary so that the parent no longer has a controlling financial interest in the subsidiary.”
“The subsidiary becomes subject to the control of a government, court, administrator, or regulator.”

Since the above examples do not represent all situations that could trigger loss of control, a reporting entity must consider all relevant facts and circumstances. A change in the determination of whether the reporting entity holds a controlling financial interest in a legal entity could occur as a result of many other events besides those indicated in the examples above.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.