8.2 Balance Sheet Presentation
The general premise of a noncontrolling interest is balance sheet focused. Noncontrolling interests have the following two characteristics:
- They are equity interests (i.e., they must be classified in equity, although they may include equity interests classified in temporary equity).
- They represent the portion of a subsidiary’s equity that is not attributable to its parent.
The first characteristic is addressed by the requirement in ASC 810-10-45-16A
that noncontrolling interests be limited to
instruments classified in equity. The second
characteristic is reflected in the presentation
requirements of ASC 810-10-45-16, which prescribe
that a reporting entity should clearly label and
present the noncontrolling interest in the equity
section of its balance sheet but separately from
the parent’s equity.
Noncontrolling interests
classified in temporary equity may subsequently
become no longer redeemable. In such a case,
classification in temporary equity would no longer
be appropriate, and those noncontrolling interests
should be reclassified into permanent equity on a
prospective basis. See Chapter 9 for a
discussion of considerations related to
noncontrolling interests classified in temporary
equity.
Example 8-1
Company D is the parent of Subsidiary E and Subsidiary F, both of which are capitalized with only common stock. Further assume the following:
- At the beginning of 20X8, D owned 80 percent of E’s common shares and 65 percent of F’s common shares.
- In 20X8, D sold 5 percent of E’s common shares to an unrelated third party for $5,000. The book value of E was $92,000 at the time of the sale.
- At the beginning of 20X9, D owned 75 percent of E’s common shares and 65 percent of F’s common shares.
- In 20X9, D purchased an additional 5 percent of F’s common shares from an unrelated third party for $4,100. The book value of F was $70,000 at the time of the purchase.
- At the end of 20X9, D owned 75 percent of E’s common shares and 70 percent of F’s common shares.
The statement of financial condition below illustrates the presentation of the
noncontrolling interest on D’s condensed balance
sheet for 20X9 and 20X8.