Chapter 9 — Redeemable Noncontrolling Interests
Chapter 9 — Redeemable Noncontrolling Interests
9.1 Introduction
Common and preferred shares of a consolidated subsidiary are
sometimes subject to redemption rights held by the noncontrolling shareholder. The
combination of a noncontrolling interest and a redemption feature (e.g., a put
option) may result in what is referred to as a redeemable noncontrolling interest.
Redemption features can be important to the noncontrolling interest holder because
they enable the holder to liquidate its investment when there is no readily
accessible market. As described in Section
3.3, noncontrolling interest classification is limited to instruments
that are appropriately classified in the equity section of the reporting entity’s
balance sheet. Because classification of equity instruments in the asset, liability,
or equity section of a reporting entity’s balance sheet is outside the scope of this
publication, we have presumed in this chapter that equity classification of a
redeemable noncontrolling interest has already been determined to be appropriate.1
Accounting for redeemable noncontrolling interests is one of the
more complex topics in U.S. GAAP, in part because the reporting entity’s accounting
depends on the unique combination of the following:
-
The form of the redeemable noncontrolling interest (common-share vs. preferred-share).
-
Whether the redemption price is at fair value or other than fair value (see Sections 9.4.4.1 through 9.4.4.2.1.3).
-
The reporting entity’s policy for determining the amount of the adjustment to be recorded each period (see Sections 9.4.3 through 9.4.3.4).
-
The reporting entity’s policy for classifying the offsetting entry to such adjustments (see Sections 9.4.4 through 9.4.4.2.1.3).
-
When a common-share redeemable noncontrolling interest is redeemable at other than fair value, the reporting entity’s policy for incorporating such adjustments into its EPS computation (see Sections 9.4.4.2 through 9.4.4.2.1.3).
The remainder of this chapter summarizes the key financial reporting
and EPS considerations related to redeemable noncontrolling interests.
Footnotes
1
See Deloitte’s Roadmap Distinguishing Liabilities From Equity, which
provides extensive interpretive guidance on the appropriate classification
of equity instruments within or outside of the equity section of a reporting
entity’s balance sheet.
9.2 Examples of Redeemable Noncontrolling Interests
Redemption of a noncontrolling interest can occur through mechanisms such as put option rights, a combination of put and call option rights, or a contingent forward purchase (sale) agreement (collectively, “redemption features”). Examples of redemption features embedded in noncontrolling interests include, but are not limited to:
- Unilateral rights held by noncontrolling interest holders to require the controlling interest holder to repurchase the subsidiary’s shares (e.g., put option) on some future date.
- Redemption features that may be triggered by the occurrence (or, in some instances, nonoccurrence) of a contingent event (e.g., the occurrence of a debt downgrade or the nonoccurrence, by a specified date, of an IPO). Typically, the contingent event is outside the control of the noncontrolling interest holder, issuer, and controlling interest holder, and its occurrence (or nonoccurrence) triggers either (1) exercisability of a put option held by the noncontrolling interest holder or (2) settlement of a forward purchase agreement (referred to as a contingent put option or contingent forward).
Redeemable noncontrolling interests usually specify one of the following three methods (or some combination thereof) for determining the redemption price of the noncontrolling interest:
- Redemption-date fair value — The redemption price is based on the fair value of the noncontrolling interest at redemption and is determined through a third-party appraisal or other fair value measurement technique.Example 9-1Company A is the parent of Subsidiary B. Entity X holds a 20 percent noncontrolling interest in B, and X’s noncontrolling interest is puttable to A at fair value on the redemption date. On June 15, 20X7, X invokes its ability to put its 20 percent interest in B to A. As a condition of the redemption feature, A and X hire an appraiser to determine the current fair value of the 20 percent interest in B. Company A will then purchase the interest from X at the appraised fair value as of the redemption date.
- Fixed price — The redemption price is fixed at a specified amount upon issuance of the redeemable noncontrolling interest.Example 9-2Company C is the parent of Subsidiary D, and Entity Y purchases a 15 percent noncontrolling interest in D from C. Company C and Entity Y agree that Y can sell its 15 percent interest in D back to C for a fixed amount ($1 million) at any time during the next three years.
- Specified formula — The redemption price is calculated on the basis of redemption-date inputs incorporated into a formula specified at inception of the redeemable noncontrolling interest. With limited exceptions, redemption features that are based on a prespecified formula do not ensure that the security will be redeemed at its fair value at the time of redemption. Footnote 18 of ASC 480-10-S99-3A states that “[c]ommon stock that is redeemable based on a specified formula is considered to be redeemable at fair value if the formula is designed to equal or reasonably approximate fair value. The SEC staff believes that a formula based solely on a fixed multiple of earnings (or other similar measure) is not considered to be designed to equal or reasonably approximate fair value.” Entities should use judgment when determining whether the formula is designed to equal or reasonably approximate fair value.Example 9-3Company E is the parent of Subsidiary F, and Entity Z holds a 25 percent noncontrolling interest in F. Entity Z’s noncontrolling interest is puttable to E at a price that Z calculates by using a prespecified formula on the redemption date. In this case, the prespecified formula redemption feature is 10 times trailing 12 months’ earnings before interest, taxes, depreciation, and amortization (EBITDA) as of the redemption date. On September 1, 20X7, Z invokes its ability to put its 25 percent interest in F to E. Company E must purchase the 25 percent interest in F from Z at an amount computed on the basis of the prespecified formula on the redemption date. The prespecified formula in this example does not ensure that the noncontrolling interest will be redeemed at its fair value because the EBITDA multiple was set at inception and will not necessarily be the market multiple at the time the put is exercised. Therefore, this noncontrolling interest should be accounted for as a noncontrolling interest redeemable at other than fair value.
As further explored in Section
9.4.4, there are two models for
subsequently measuring common-share redeemable
noncontrolling interests. One model applies to
common-share redeemable noncontrolling interests
that are redeemable at fair value. The other model
applies to common-share redeemable noncontrolling
interests that are redeemable at other than fair
value (i.e., both noncontrolling interests that
are redeemable at a fixed price and noncontrolling
interests that are redeemable at a specified
formula value). The reporting considerations
related to noncontrolling interests that are
redeemable at other than fair value are
significantly different from, and more complex
than, those related to noncontrolling interests
that are redeemable at fair value.
9.3 Scope of ASC 480-10-S99-3A and Interaction With ASC 810-10
As stated previously, we have presumed in this chapter that the
equity classification of a redeemable noncontrolling interest has already been
determined to be appropriate. The decision tree above illustrates how to evaluate
the redemption features included in a contract with a noncontrolling interest
holder, or embedded in the noncontrolling interest, when the noncontrolling interest
itself has already been determined to be appropriately classified as equity.
If a noncontrolling interest’s redemption feature is freestanding (i.e., not embedded
in the noncontrolling interest), the redemption feature should be evaluated under
ASC 480 and other applicable GAAP. However, if the redemption feature is embedded in
the noncontrolling interest and does not require bifurcation under ASC 815-15, the
redemption feature does not require separate evaluation under ASC 480 since the
redemption feature is not a separate freestanding financial instrument. Rather, the
noncontrolling interest, inclusive of the embedded redemption feature, would be
analyzed for equity classification.
While the authoritative guidance applicable to all noncontrolling interests
resides primarily in ASC 810-10, ASC 480-10-S99-3A contains an SEC staff
announcement that provides guidance for SEC registrants on the classification and
measurement of redeemable securities, including redeemable noncontrolling interests.
The guidance in ASC 480-10-S99-3A arises from SEC staff interpretations of ASR 268.
ASR 268 establishes that SEC registrants should “highlight the future cash
obligations attached to redeemable [shares] through appropriate balance sheet
presentation and footnote disclosure.”
When a redeemable security is within the scope of ASC 810-10, the parent entity should first apply the accounting and disclosure guidance in ASC 810-10 to the noncontrolling interest in its consolidated financial statements. In addition to applying this guidance, a parent entity that is an SEC registrant or a parent entity that has elected to apply guidance applicable to SEC registrants must also consider whether the noncontrolling interest is a redeemable equity security within the scope of ASC 480-10-S99-3A.
Noncontrolling interests that include a redemption feature (e.g., that are
puttable to the issuing entity, its parent entity, or a consolidated subsidiary of
its parent entity) are within the scope of ASC 480-10-S99-3A provided that all three
of the following conditions are met:
-
The parent entity is an SEC registrant or has elected to apply guidance applicable to SEC registrants.
-
The redemption feature is not considered a freestanding financial instrument. (If the redemption feature is considered a freestanding financial instrument, the parent entity would continue to apply the guidance in ASC 810-10 to the noncontrolling interest, but not to the freestanding redemption feature. Rather, the freestanding redemption feature would be evaluated and accounted for under the guidance in ASC 480-10 and ASC 815, as applicable.)
-
The redemption feature is not solely within the control of the issuer. (ASC 480-10-S99-3A(10) and (11) discuss circumstances in which the redemption of noncontrolling interests may be within the control of the issuer.)
In the separate financial statements of the consolidated subsidiary, ASC 480-10-S99 need not be applied if either of the following conditions is met:
- The subsidiary is not required, and has not elected, to apply the guidance applicable to SEC registrants.
- Upon the redemption of an equity security, the parent entity, but not the subsidiary, is required to pay the redemption price. That is, in recognition that the objective of ASR 268 (as incorporated into ASC 480-10-S99-1) is to “highlight the future cash obligations attached to redeemable [shares],” ASC 480-10-S99-3A does not apply to a subsidiary’s separate financial statements when the redemption price is paid by the parent entity since a requirement for the parent to pay the redemption price does not represent a cash obligation of the reporting entity (i.e., the subsidiary).
In summary, if a reporting entity determines that the redeemable noncontrolling interest is within the scope of ASC 480-10-S99-3A, the accounting and disclosure guidance in ASC 480-10-S99-3A should be applied after the application of the accounting and disclosure guidance in ASC 810-10. A reporting entity’s application of ASC 480-10-S99-3A does not relieve the entity of the requirements of the accounting and disclosure guidance in ASC 810-10.
Connecting the Dots
Although permitted, application of the guidance in ASC 480-10-S99-3A is not
required for entities that are not SEC registrants. When an entity that is
not an SEC registrant has previously elected not to apply SEC guidance, the
entity’s subsequent adoption of ASC 480-10-S99-3A (either as a voluntary
policy election or in anticipation of becoming an SEC registrant) does not
constitute the correction of an accounting error under ASC 250. Rather, the
adoption of ASC 480-10-S99-3A in such instances would be considered a change
in accounting principle as defined in ASC 250. Further, financial statements
that have been revised to reflect the adoption of ASC 480-10-S99-3A in
anticipation that they will be filed with the SEC are not considered
restated. However, if an error is identified in previously issued financial
statements (e.g., the reporting entity previously elected a policy of
applying the guidance in ASC 480-10-S99-3A but applied it incorrectly) and
is corrected in conjunction with or in anticipation of the filing of the
financial statements with the SEC, the reporting entity should consider the
disclosure requirements in ASC 250-10-50 related to the correction of an
error.
9.4 Accounting for Redeemable Noncontrolling Interests
A redemption feature in a noncontrolling interest could potentially affect the following:
- Classification of the noncontrolling interest in the equity section of the balance sheet.
- Subsequent measurement of the noncontrolling interest.
- Attribution of the subsidiary’s net income between the controlling and noncontrolling interests.
- The parent’s EPS computation.
Specifically:
- Redeemable noncontrolling interests are typically classified outside of permanent equity, in a separate component of equity typically referred to as “temporary” equity (see Section 9.4.1).
- Subsequent measurement of a redeemable noncontrolling interest is driven by the nature of the redemption feature (contingent vs. noncontingent) and the policy elected for measuring noncontrolling interests when they are not currently redeemable but it is probable that they will become redeemable (see Section 9.4.3).
- The amount of a subsidiary’s net income that is attributed to noncontrolling interests on the face of the consolidated reporting entity’s income statement is affected by classification of the offsetting entry (hereafter referred to as the ASC 480 offsetting entry) arising from ASC 480 adjustments to the redeemable noncontrolling interest’s carrying amount (hereafter referred to as the ASC 480 measurement adjustments). Classification of the ASC 480 offsetting entry is affected, in turn, by a cascading series of variables. The first gating variable is related to the form of the redeemable noncontrolling interest (common-share vs. preferred-share). For a common-share redeemable noncontrolling interest, the next variable is related to the nature of the redemption price (fair value vs. other than fair value). For a common-share redeemable noncontrolling interest that is redeemable at other than fair value, the final gating variable is related to classification of the ASC 480 offsetting entry, which is driven by the reporting entity’s policy election for recording such adjustments (income attributable to noncontrolling interests vs. retained earnings). It is this series of cascading variables that makes the accounting for redeemable noncontrolling interests one of the more complex aspects of U.S. GAAP to apply (see Section 9.4.4).
- The implications of a redeemable noncontrolling interest on the parent’s EPS computation are driven by:
- The parent’s policy for classifying the ASC 480 offsetting entry as either a component of equity or a component of net income attributable to noncontrolling interests.
- The form of the redeemable noncontrolling interest (common-share vs. preferred-share).
- The nature of the redemption price (fair value vs. other than fair value) for a common-share redeemable noncontrolling interest.
- The entity’s policy for incorporating into its EPS calculation the fair value component of changes in a redemption price that is valued at other than fair value.
These topics are addressed in Sections 9.4.4 through 9.4.4.3.
The table below summarizes the impacts of the various forms of redeemable noncontrolling interests on the parent’s financial statements. These impacts are further discussed in subsequent sections of this chapter.
Form of
Noncontrolling
Interest/Redemption
Price | Classification/
Initial
Measurement | Subsequent
Measurement | Impact on
Attribution of
Earnings | Impact on EPS
Calculation |
|---|---|---|---|---|
Preferred-share/any
price | Temporary equity/typically fair value (see Sections 9.4.1 and 9.4.2) | Measure in accordance
with ASC 480-10-S99-3A
if applicable | Depends on ASC 480 offsetting entry policy election (see Section 9.4.4.3 and
Example 9-9) | Direct or indirect (see Section 9.4.4.3 and Example 9-9) |
Common-share/fair
value | Temporary equity/typically fair value (see Sections 9.4.1 and 9.4.2) | Measure at higher of:
| None (see Section
9.4.4.1) | None (see Section
9.4.4.1) |
Common-share/other
than fair value | Temporary equity/typically fair value (see Sections 9.4.1 and 9.4.2) | Measure at higher of:
| Depends on ASC 480 offsetting entry policy election (see Section 9.4.4.2 and
Examples 9-6 through
9-8) | Direct or indirect (see Section 9.4.4.2 and Examples 9-6 through 9-8) |
9.4.1 Classification of Redeemable Noncontrolling Interests
ASC 480-10 — SEC Materials — SEC Staff Guidance
SEC Staff Announcement: Classification and Measurement of Redeemable Securities
S99-3A(2) ASR 268 requires
preferred securities that are redeemable for cash or
other assets to be classified outside of permanent
equity if they are redeemable (1) at a fixed or
determinable price on a fixed or determinable date, (2)
at the option of the holder, or (3) upon the occurrence
of an event that is not solely within the control of the
issuer. As noted in ASR 268, the Commission reasoned
that “[t]here is a significant difference between a
security with mandatory redemption requirements or whose
redemption is outside the control of the issuer and
conventional equity capital. The Commission believes
that it is necessary to highlight the future cash
obligations attached to this type of security so as to
distinguish it from permanent capital.”
A reporting entity should classify, outside of permanent equity (i.e., in
temporary equity), all equity securities that are within the scope of ASC 480-10-S99-3A,
including common-share and preferred-share redeemable noncontrolling interests. The
reporting entity should also consider that it is unnecessary for a feature to explicitly
provide for settlement in cash or other assets to be within the scope of ASC
480-10-S99-3A. For example, if an issuer is not solely in control of share settlement of a
share-settled feature (e.g., a conversion feature), temporary equity classification may be
required. See Section 9.4.6 of Deloitte’s Roadmap
Distinguishing Liabilities From Equity for
further discussion.
9.4.2 Initial Measurement of Redeemable Noncontrolling Interests
ASC 480-10 — SEC Materials — SEC Staff Guidance
SEC Staff Announcement: Classification and Measurement of Redeemable Securities
S99-3A(12)
Initial measurement. The SEC staff believes the
initial carrying amount of a redeemable equity
instrument that is subject to ASR 268 should be its
issuance date fair value, except as follows: . . .
c. For noncontrolling interests, the initial
amount presented in temporary equity should be the
initial carrying amount of the noncontrolling
interest pursuant to Section 805-20-30. . .
.
Establishing the initial measurement amount for a redeemable noncontrolling
interest is important because, in certain instances, after ASC 810-10 attribution of a
subsidiary’s earnings to noncontrolling interests (hereafter referred to as the ASC 810-10
attribution adjustment), the reporting entity must record an ASC 480 measurement
adjustment to accurately reflect potential claims on the reporting entity’s net assets
that are held by redeemable noncontrolling interest holders. It therefore follows that
establishing the correct initial carrying amount for a redeemable noncontrolling interest
ensures that subsequent ASC 480 measurement adjustments accurately isolate
reporting-period changes in redemption-related claims on the subsidiary’s net assets. As
explained in more detail in Chapter 5 of this
Roadmap, the initial measurement of noncontrolling interests is typically at fair value,
subject to certain exceptions provided in ASC 805.
In addition to ASC 805, ASC 810-10 provides guidance on the initial recognition of noncontrolling interests. While ASC 810-10 follows the general principle of requiring that
noncontrolling interests be initially recognized at fair value, ASC 810-10-30-1 and ASC 810-10-30-7 through
30-8C provide for certain exceptions to this principle when noncontrolling interests in a subsidiary are
recognized concurrently with the parent’s initial consolidation of the subsidiary. Specifically:
- When a VIE and its primary beneficiary are under common control, the primary beneficiary of the VIE should initially recognize the assets, liabilities, and noncontrolling interests of the VIE at their carryover basis (see ASC 810-10-30-1).
- When a primary beneficiary first consolidates a VIE, the noncontrolling interest should be initially measured at its “carrying amount” if earlier consolidation was prevented because of a lack of information (see ASC 810-10-30-7).The term “carrying amount” is defined by ASC 810-10 as the amount at which the noncontrolling interest would have been carried in the primary beneficiary’s financial statements if the information required to consolidate the VIE had always been available. Under ASC 810-10-30-7 through 30-8C, if determining the carrying amount is not practicable, initial measurement at fair value is an acceptable alternative.
Incremental to the exceptions described above, an additional exception to recognizing noncontrolling interests at fair value may arise when a parent experiences a change in ownership in an existing (as opposed to newly consolidated) subsidiary without an accompanying loss of control (see Chapter 7). In such situations, the noncontrolling interest is initially recognized at an amount equal to the fair value of the consideration received in exchange for establishment of the noncontrolling interest. An immediate adjustment to the carrying amount of the noncontrolling interest may result from the five-step process outlined in Section 7.1.2 that is required to rebalance the subsidiary’s equity accounts between controlling and noncontrolling interests. In such circumstances, the carrying amount of a redeemable noncontrolling interest after application of that five-step process (which may not equal fair value) represents the initial carrying amount of the redeemable noncontrolling interest to which all subsequent ASC 810-10 attribution adjustments and ASC 480 measurement adjustments will be applied.
9.4.3 Subsequent Measurement of Redeemable Noncontrolling Interests
ASC 480-10 — SEC Materials — SEC Staff Guidance
SEC Staff Announcement: Classification and Measurement of Redeemable Securities
S99-3A(14) If an equity instrument subject to ASR 268
is currently redeemable (for example, at the option of the holder), it should
be adjusted to its maximum redemption amount at the balance sheet date. If the
maximum redemption amount is contingent on an index or other similar variable
(for example, the fair value of the equity instrument at the redemption date
or a measure based on historical EBITDA), the amount presented in temporary
equity should be calculated based on the conditions that exist as of the
balance sheet date (for example, the current fair value of the equity
instrument or the most recent EBITDA measure). The redemption amount at each
balance sheet date should also include amounts representing dividends not
currently declared or paid but which will be payable under the redemption
features or for which ultimate payment is not solely within the control of the
registrant (for example, dividends that will be payable out of future
earnings).FN13
__________________________________________________
FN13 See also Section 260-10-45.
S99-3A(15) If an equity
instrument subject to ASR 268 is not currently
redeemable (for example, a contingency has not been
met), subsequent adjustment of the amount presented in
temporary equity is unnecessary if it is not probable
that the instrument will become redeemable. If it is
probable that the equity instrument will become
redeemable (for example, when the redemption depends
solely on the passage of time), the SEC staff will not
object to either of the following measurement methods
provided the method is applied consistently:
-
Accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument using an appropriate methodology, usually the interest method. Changes in the redemption value are considered to be changes in accounting estimates.
-
Recognize changes in the redemption value (for example, fair value) immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the instrument.
S99-3A(16) The following
additional guidance is relevant to the application of
the SEC staff’s views in paragraphs 14 and 15: . . .
e. [R]egardless of the accounting method
applied in paragraphs 14 and 15, the amount presented in temporary equity
should be no less than the initial amount reported in temporary equity for
the instrument. That is, reductions in the carrying amount of a redeemable
equity instrument from the application of paragraphs 14 and 16 are
appropriate only to the extent that the registrant has previously recorded
increases in the carrying amount of the redeemable equity instrument from
the application of paragraphs 14 and 15.
9.4.3.1 Sequencing of ASC 810-10 Attribution and ASC 480 Measurement Adjustments
A reporting entity with a common-share redeemable noncontrolling interest within
the scope of ASC 480-10-S99-3A (see Section 9.3) should first apply the subsequent measurement guidance in ASC
810-10 and then apply the subsequent measurement guidance in ASC 480-10-S99-3A. As a
result, the noncontrolling interest will be recorded at the higher
of (1) the cumulative amount that would result from applying the measurement
guidance in ASC 810-10 (i.e., initial carrying amount, increased or decreased for the
noncontrolling interest’s share of net income or loss, OCI or other comprehensive loss,
and dividends) or (2) the redemption price. Sometimes, this sequencing may result in the
need to subsequently reverse all or part of a prior-period ASC 480 measurement
adjustment (e.g., recording the ASC 810-10 attribution adjustment in the current period
may increase the carrying amount of the redeemable noncontrolling interest to an amount
greater than both (1) and (2), making it necessary to reverse all or part of a
prior-period ASC 480 measurement adjustment).
9.4.3.2 Methods of Determining ASC 480 Measurement Adjustment Amount
While ASC 480-10-S99-3A(14) through (16) are written in the context of
redeemable equity interests (as opposed to being written specifically in the context of
redeemable noncontrolling interests), these paragraphs are instructive for determining
the subsequent measurement of a redeemable noncontrolling interest. After applying the
measurement guidance in ASC 810-10 to a noncontrolling interest that is redeemable
currently, an entity is required to adjust the noncontrolling interest’s carrying amount
as of each balance sheet date to its current redemption price.2
When it is probable that noncontrolling interests that are not currently
redeemable will become redeemable, a reporting entity may elect, in accordance with ASC
480-10-S99-3A(15), a policy of applying either of the following methods of determining
the amount of the ASC 480 measurement adjustment after applying the measurement guidance
in ASC 810-10:
-
Accretion method — “Accrete changes in the redemption [price of the instrument] over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument using an appropriate methodology.”
-
Immediate method — “Recognize changes in the redemption [price] immediately as they occur.”
The policy elected should be consistently applied to all similar redeemable equity instruments of the
reporting entity. For example, some reporting entities choose to apply the accretion method to all
redeemable noncontrolling interests that are redeemable at a fixed price while applying the immediate
method to all redeemable noncontrolling interests that are redeemable at fair value or a formula.
Connecting the Dots
While ASC 480-10-S99-3A(16)(e) states that “the amount presented in temporary
equity should be no less than the initial amount reported in temporary equity for
the instrument,” this guidance is not intended to preclude the attribution of a
subsidiary’s losses to a redeemable noncontrolling interest (in accordance with ASC
810-10-45-19 through 45-21) from reducing the carrying amount of the redeemable
noncontrolling interest below the instrument’s initial carrying amount. That is,
while ASC 480-10-S99-3A(16)(e) does not allow for cumulative “negative” ASC 480
measurement adjustments to be applied to the carrying amount of a redeemable
noncontrolling interest, it does not preclude cumulative “negative” ASC 810-10
attribution adjustments from being recorded. Note that if the carrying amount of a
redeemable noncontrolling interest after the ASC 810-10 attribution adjustment is
less than the redeemable noncontrolling interest’s redemption price, a subsequent
ASC 480 measurement adjustment should be recorded to adjust the redeemable
noncontrolling interest’s carrying amount to its redemption price. This concept is
illustrated in the years ended 20X9 and 20Y0 in Example 9-5.
9.4.3.3 Impact of an IPO-Triggered Mandatory Conversion Feature
Sometimes, a reporting entity that is not yet public may issue redeemable equity
instruments that mandatorily convert to the entity’s common shares upon an IPO. The
existence of an IPO-triggered mandatory conversion feature can affect the entity’s
assessment of whether it is probable that the interest will become redeemable. Reporting
entities that are party to such instruments should refer to Section 9.5.4.3 of Deloitte’s Roadmap Distinguishing Liabilities From
Equity, which contains guidance on the impact of an IPO-triggered
mandatory conversion feature on a reporting entity’s redemption probability
assessment.
9.4.3.4 Illustrative Examples of Subsequent Measurement of Redeemable Noncontrolling Interests
Example 9-4
Assume the following:
- Company A owns all of the outstanding common shares and is the parent of Subsidiary B.
- Subsidiary B issued a preferred-share noncontrolling interest to Entity C on January 1, 20X7, for $1 million. The interest represents all of B’s outstanding preferred securities.
- The preferred securities are not entitled to dividends but are redeemable by A at the security holder’s option for $1.25 million beginning on December 31, 20X8 (two years after issuance).
- Company A has elected to apply the accretion method and uses the interest method to accrete the redeemable noncontrolling interest to the interest’s redemption price.
The parties’ interests are illustrated in the diagram below.
Company A has determined that an effective interest rate of 11.803 percent results in the redeemable
noncontrolling interest being fully accreted to its redemption price by December 31, 20X8. Company A
subsequently measures the noncontrolling interest at the following amounts:
December 31, 20X7 — $1,118,034
December 31, 20X8 — $1,250,000
The ASC 480 measurement adjustments that A records for 20X7 and 20X8 to measure
the noncontrolling interest at the amounts above will affect A’s EPS
computation. The exact impact on A’s EPS computation will depend on A’s
policy elections for classifying the offsetting entry to its ASC 480
measurement adjustment (see Section 9.4.4.3 and Example 9-9).
Example 9-5
Assume the following:
- Company X is the parent of Subsidiary Y.
- Entity Z holds a 20 percent noncontrolling interest in the common shares of Y. Entity Z acquired that noncontrolling interest from X on January 1, 20X7, for $1 million (which is the initial carrying amount of the noncontrolling interest).
The parties’ interests are illustrated in the diagram below.
Further assume the following:
- The noncontrolling interest is redeemable at the option of Z at any time for a price equal to fair value.3
- When X recorded its ASC 810-10 attribution adjustment for the years ended December 31 of 20X7, 20X8, 20X9, and 20Y0, respectively, it attributed portions of Y’s net income (loss) to Z’s redeemable noncontrolling interest in Y as follows:
-
Year ended December 31, 20X7 — $100,000.
-
Year ended December 31, 20X8 — $128,000.
-
Year ended December 31, 20X9 — ($500,000).
-
Year ended December 31, 20Y0 — ($75,000).
-
- Company X had a valuation of Z’s redeemable noncontrolling interest in Y performed for the years ended December 31 of 20X7, 20X8, 20X9, and 20Y0, respectively. On the basis of that valuation, X determined that the fair value of the redeemable noncontrolling interest was as follows:
-
As of December 31, 20X7 — $1.25 million.
-
As of December 31, 20X8 — $1.2 million.
-
As of December 31, 20X9 — $718,000.
-
As of December 31, 20Y0 — $675,000.
-
The table below shows, as of each of those year-ends, the (1) ASC 810-10 attribution adjustment, (2) cumulative
ASC 810-10 attribution adjustments, (3) appraised fair value of the redeemable noncontrolling interest,
and (4) carrying amount of the redeemable noncontrolling interest after application of ASC 810-10 and ASC
480-10-S99-3A.
|
Year Ended December 31
|
ASC 810-10 Attribution Adjustment
|
Cumulative ASC 810-10 Attribution
Adjustments
|
Appraised Fair Value
|
Carrying Amount After Application of ASC 810-
10 and ASC 480-10-S99-3A
|
Comments
|
|---|---|---|---|---|---|
20X7 | $100,000 | $100,000 | $1,250,000 | $1,250,000 | Carried at fair value (ASC 480 value) since this is higher than the carrying amount after cumulative ASC 810-10 attribution adjustments (i.e., $1,100,000). |
20X8 | $128,000 | $228,000 | $1,200,000 | $1,228,000 | Carried at amount equal to initial measurement of $1 million plus cumulative ASC 810-10 attribution adjustments since this is higher than fair value. Reversal of prior ASC 480 measurement adjustment will be required in current period. |
20X9 | ($500,000) | ($272,000) | $718,000 | $728,000 | Carried at amount equal to initial measurement of $1 million plus cumulative ASC 810-10 attribution adjustments of ($272,000) since this is higher than fair value. Carrying amount below initial temporary equity measurement of $1 million is required since this is a result of the application of ASC 810-10 (as opposed to a cumulative “negative” ASC 480 measurement adjustment). |
20Y0 | ($75,000) | ($347,000) | $675,000 | $675,000 | Carried at amount equal to fair value since this is higher than initial measurement of $1 million plus cumulative ASC 810-10 attribution adjustments (losses) of $347,000. Carrying amount below
initial temporary equity
measurement of $1
million is required
since the $653,000
carrying amount
of the redeemable
noncontrolling interest
after the ASC 810-10
attribution adjustments
is less than the fair
value redemption
price. Note that the
subsequent ASC
480 measurement
adjustment of $22,000,
while still resulting in a
noncontrolling interest
carrying amount below
the initial temporary
equity measurement of
$1 million, is required
since it increases
the redeemable
noncontrolling
interest’s carrying
amount after the ASC
810-10 attribution
adjustment to reflect the impact of the fair
value redemption
option. |
As explained in more detail in the next section, the ASC 480 measurement
adjustments (if any) that X records to measure the noncontrolling interest at the amount
indicated in the fourth column of the table above will not affect the parent’s EPS
computation because the common-share noncontrolling interest is redeemable at fair
value.
9.4.4 Determining the Offsetting Entry and the EPS Impact of ASC 480 Measurement Adjustments
ASC 480-10 — SEC Materials — SEC Staff Guidance
SEC Staff Announcement: Classification and Measurement of Redeemable Securities
S99-3A(21)
Common stock instruments issued by a parent (or single reporting
entity). Regardless of the accounting method selected in paragraph 15,
the resulting increases or decreases in the carrying amount of redeemable
common stock should be treated in the same manner as dividends on
nonredeemable stock and should be effected by charges against retained
earnings or, in the absence of retained earnings, by charges against paid-in
capital. However, increases or decreases in the carrying amount of a
redeemable common stock should not affect income available to common
stockholders. Rather, the SEC staff believes that to the extent that a common
shareholder has a contractual right to receive at share redemption (in other
than a liquidation event that meets the exception in paragraph 3(f)) an amount
that is other than the fair value of the issuer’s common shares, then that
common shareholder has, in substance, received a distribution different from
other common shareholders. Under Paragraph 260-10-45-59A, entities with
capital structures that include a class of common stock with different
dividend rates from those of another class of common stock but without prior
or senior rights, should apply the two-class method of calculating earnings
per share. Therefore, when a class of common stock is redeemable at other than
fair value, increases or decreases in the carrying amount of the redeemable
instrument should be reflected in earnings per share using the two-class
method.FN17 For common stock redeemable at fair value, the SEC
staff would not expect the use of the two-class method, as a redemption at
fair value does not amount to a distribution different from other common
shareholders. [Footnotes 18 and 19 omitted]
__________________________________________________
FN17 The two-class method of computing earnings per share is
addressed in Section 260-10-45. The SEC staff believes that there are two
acceptable approaches for allocating earnings under the two-class method
when a common stock instrument is redeemable at other than fair value. The
registrant may elect to: (a) treat the entire periodic adjustment to the
instrument’s carrying amount (from the application of paragraphs 14–16) as
being akin to a dividend or (b) treat only the portion of the periodic
adjustment to the instrument’s carrying amount (from the application of
paragraphs 14–16) that reflects a redemption in excess of fair value as
being akin to a dividend. Under either approach, decreases in the
instrument’s carrying amount should be reflected in the application of the
two-class method only to the extent they represent recoveries of amounts
previously reflected in the application of the two-class method.
S99-3A(22)
Noncontrolling interests. Paragraph 810-10-45-23
indicates that changes in a parent’s ownership interest
while the parent retains control of its subsidiary are
accounted for as equity transactions, and do not impact
net income or comprehensive income in the consolidated
financial statements. Consistent with Paragraph
810-10-45-23, an adjustment to the carrying amount of a
noncontrolling interest from the application of
paragraphs 14–16 does not impact net income or
comprehensive income in the consolidated financial
statements. Rather, such adjustments are treated akin to
the repurchase of a noncontrolling interest (although
they may be recorded to retained earnings instead of
additional paid-in capital). The SEC staff believes the
guidance in paragraphs 20 and 21 should be applied to
noncontrolling interests as follows:
-
Noncontrolling interest in the form of preferred stock instrument. The impact on income available to common stockholders of the parent arising from adjustments to the carrying amount of a redeemable noncontrolling interest other than common stock depends upon whether the redemption feature in the equity instrument was issued, or is guaranteed, by the parent. If the redemption feature was issued, or is guaranteed, by the parent, the entire adjustment under paragraph 20 reduces or increases income available to common stockholders of the parent. Otherwise, the adjustment is attributed to the parent and the noncontrolling interest in accordance with Paragraphs 260-10-55-64 through 55-67.
-
Noncontrolling interest in the form of common stock instrument. Adjustments to the carrying amount of a noncontrolling interest issued in the form of a common stock instrument to reflect a fair value redemption feature do not impact earnings per share. Adjustments to the carrying amount of a noncontrolling interest issued in the form of a common stock instrument to reflect a non-fair value redemption feature do impact earnings per share; however, the manner in which those adjustments reduce or increase income available to common stockholders of the parent may differ.FN20 If the terms of the redemption feature are fully considered in the attribution of net income under Paragraph 810- 10-45-21, application of the two-class method is unnecessary. If the terms of the redemption feature are not fully considered in the attribution of net income under Paragraph 810-10-45-20, application of the two-class method at the subsidiary level is necessary in order to determine net income available to common stockholders of the parent.__________________________________________________FN20 Subtopic 810-10 does not provide detailed guidance on the attribution of net income to the parent and the noncontrolling interest. The SEC staff understands that when a noncontrolling interest is redeemable at other than fair value some registrants consider the terms of the redemption feature in the calculation of net income attributable to the parent (as reported on the face of the income statement), while others only consider the impact of the redemption feature in the calculation of income available to common stockholders of the parent (which is the control number for earnings per share purposes).
As explained in Section
9.4, classification of the ASC 480 offsetting entry is driven by the nature
of the redemption price (fair value vs. other than fair value) and, for common-share
redeemable noncontrolling interests that are redeemable at other than fair value and all
preferred-share redeemable noncontrolling interests, the entity’s policy for recording the
ASC 480 measurement adjustments and for incorporating them into the parent’s EPS
computation.
9.4.4.1 Common-Share Noncontrolling Interests Redeemable at Fair Value
When the redemption price of a common-share redeemable noncontrolling interest
exceeds the noncontrolling interest’s ASC 810-10 carrying amount (i.e., its carrying
amount after the attribution of income or loss to the noncontrolling interest), a
reporting entity that is within the scope of ASC 480-10- S99-3A should record an ASC 480
measurement adjustment in accordance with that guidance. Although a fair value
redemption feature provides the holder of the instrument with an important source of
liquidity, some believe that the ASC 480 offsetting entry should be classified in APIC
because fair value redemption features do not convey value to their holder that is
incremental to what could be achieved in a transaction conducted at fair value with an
unrelated marketplace participant. This view is consistent with the guidance in ASC
810-10-45-23 that requires changes in a parent’s ownership interest in a subsidiary over
which the parent retains a controlling financial interest to be accounted for as equity
transactions. Others believe that the guidance in ASC 480-10-S99-3A(21) on classifying
ASC 480 offsetting entries for redeemable parent common shares indicates that the ASC
480 offsetting entry for the common-share redeemable noncontrolling interest should be
classified in retained earnings (or APIC in the absence of retained earnings). We
believe that either approach is acceptable as long as the classification is consistently
applied to similar instruments. Regardless of classification, for a common-share
redeemable noncontrolling interest that is redeemable at fair value, the ASC 480
offsetting entry has no impact on consolidated net income of the parent, net income
attributable to the parent, or income available to common stockholders of the
parent.
9.4.4.2 Common-Share Noncontrolling Interests Redeemable at Other Than Fair Value
The ASC 480 measurement adjustment for a common-share noncontrolling interest redeemable at other than fair value is intended, in part, to reflect the liquidity being provided to the redeemable noncontrolling interest holder for the entire redemption price and to also identify the noncontrolling interest’s potential to convey value to its holder that is incremental to the value that the holder of a nonredeemable common-share noncontrolling interest could receive in a transaction conducted at fair value with an unrelated marketplace participant. The multiple financial reporting objectives of the ASC 480 measurement adjustment, coupled with the accepted diversity in practice for achieving these objectives, makes classification of the ASC 480 offsetting entry one of the more complex aspects of U.S. GAAP to apply to redeemable noncontrolling interests.
To set the stage for the ensuing discussion and illustration of the various approaches that we believe are acceptable for achieving these financial reporting objectives, we note that a reporting entity must answer the following threshold questions before it can determine the impact of the ASC 480 measurement adjustment on its consolidated financial statements:
- To what extent does the reporting entity wish the ASC 480 measurement adjustment to affect net income attributable to the parent, the parent’s reported EPS, or both? The reporting entity may elect one of the following approaches:
- Have the entire amount of the reporting period’s ASC 480 measurement adjustment affect net income attributable to the parent, the parent’s reported EPS, or both.
- Limit the impact of the reporting period’s ASC 480 measurement adjustment to the portion of the ASC 480 measurement adjustment necessary to ensure that on a cumulative basis, net income attributable to the parent, the parent’s reported EPS, or both has been reduced by the amount, if any, that the redeemable noncontrolling interest’s redemption price exceeds both (1) the redeemable noncontrolling interest’s fair value and (2) the redeemable noncontrolling interest’s ASC 810-10 carrying amount. This portion is hereafter referred to as the excess portion of the ASC 480 measurement adjustment or the excess portion of the ASC 480 offsetting entry.The remaining portion of the ASC 480 measurement adjustment necessary to ensure that the redeemable noncontrolling interest’s period-end carrying amount equals the greater of its ASC 810-10 carrying amount or its redemption price is hereafter referred to as the base portion of the ASC 480 measurement adjustment or the base portion of the ASC 480 offsetting entry. On a cumulative basis, this will be the amount, if any, by which the redeemable noncontrolling interest’s current redemption price is equal to or less than fair value but greater than the redeemable noncontrolling interest’s ASC 810-10 carrying amount. This portion of the ASC 480 measurement adjustment does not affect net income attributable to the parent, the parent’s reported EPS, or both.
Note that while the latter approach may reduce the impact of the ASC 480 measurement adjustment on net income attributable to the parent, the parent’s reported EPS, or both (as illustrated in the diagram and table below), it is also significantly more complex to apply. This is because the focus of the latter approach is on ensuring that the cumulative impact of the redemption feature is isolated to the amount by which the redemption price exceeds both the redeemable noncontrolling interest’s fair value and its ASC 810-10 carrying amount. Consequently, classification of each period’s ASC 480 measurement adjustment is affected by both (1) the noncontrolling interest’s redemption price, its ASC 810-10 carrying amount, and its fair value in the current period and (2) the amount and treatment of the ASC 480 measurement adjustment recognized in prior periods. As a result of this approach’s focus on the cumulative impact of redeemable noncontrolling interests on net income attributable to the parent, the parent’s reported EPS, or both, the ASC 480 measurement adjustment may comprise a positive base portion and a negative excess portion (or a negative base portion and a positive excess portion) in any given reporting period. - If the reporting entity elects to have the entire amount of the ASC 480 measurement adjustment affect net income attributable to the parent, the parent’s reported EPS, or both, how does the reporting entity wish to classify the entire ASC 480 offsetting entry?
- If the reporting entity elects to limit the impact of the ASC 480 measurement adjustment to the excess portion of the ASC 480 measurement adjustment, how does the reporting entity wish to classify:
- The base portion of the ASC 480 measurement adjustment?
- The excess portion of the ASC 480 measurement adjustment?
The following approaches are acceptable for reflecting in consolidated financial reporting the ASC 480 measurement adjustment for common-share redeemable noncontrolling interests redeemable at other than fair value and represent the possible responses to the threshold questions above:
- Income classification — entire adjustment method — Use net income (loss) attributable to noncontrolling interests to classify the entire ASC 480 offsetting entry. Because net income (loss) attributable to noncontrolling interests directly affects net income attributable to the parent’s common shareholders, which is the control number used for the parent’s EPS computation, use of this method does not require the reporting entity to make additional adjustments to the control number of the parent’s EPS computation to accurately reflect the impact of the redemption feature (see Example 9-6).
- Equity classification — entire adjustment method — Use retained earnings to classify the entire ASC 480 offsetting entry. Because adjustments to retained earnings are not directly considered in net income attributable to the parent’s common shareholders, the parent must first apply the two-class method of calculating EPS (as discussed in ASC 260) at the subsidiary level, treating the entire amount of the ASC 480 offsetting entry as an adjustment to the control number of the subsidiary’s EPS computation. The resulting EPS amount determined at the subsidiary level for the class of subsidiary shares owned by the parent should then be used for determining the amount of subsidiary income that must be incorporated into the control number of the parent’s own EPS computation (see Example 9-6).
- Income classification — excess adjustment method — Use net income (loss) attributable to noncontrolling interests to classify only the excess portion of the ASC 480 offsetting entry. The base portion of the ASC 480 offsetting entry may be consistently classified in either of the following:
- Retained earnings (or APIC in the absence of retained earnings) — The guidance in ASC 480-10-S99-3A(21) on classifying ASC 480 offsetting entries for redeemable parent common shares in retained earnings (or APIC in the absence of retained earnings) informs the acceptability of this approach for classifying in retained earnings the base portion of the ASC 480 offsetting entry (see Example 9-7).
- APIC — The guidance in ASC 810-10-45-23 that requires changes in a parent’s ownership interest to be accounted for as equity transactions informs the acceptability of this approach for classifying in APIC the base portion of the ASC 480 offsetting entry (see Example 9-7).
Because the income classification — excess adjustment method appropriately incorporates into net income (loss) attributable to the parent’s common shareholders the excess portion of the ASC 480 offsetting entry, the reporting entity does not need to make additional adjustments to the control number of the parent’s EPS computation to accurately reflect the impact of the redemption feature. - Equity classification — excess adjustment method — Always use retained earnings (or APIC in the absence of retained earnings) to classify the excess portion of the ASC 480 offsetting entry. The base portion of the ASC 480 offsetting entry may be consistently classified as either:
- Retained earnings (or APIC in the absence of retained earnings) — As noted above in the description of the income classification — excess adjustment method, ASC 480-10-S99-3A(21) informs the acceptability of this approach for classifying in retained earnings the base portion of the ASC 480 offsetting entry (see Example 9-8).
- APIC — As noted above in the description of the income classification —excess adjustment method, ASC 810-10-45-23 informs the acceptability of this approach for classifying in APIC the base portion of the ASC 480 offsetting entry (see Example 9-8).
As would be the case under the equity classification — entire adjustment method, because adjustments to retained earnings are not directly considered in net income attributable to the parent’s common shareholders, the parent must first apply the two-class method at the subsidiary level when using the equity classification — excess adjustment method, treating the excess portion of the ASC 480 offsetting entry as an adjustment to the control number of the subsidiary’s EPS computation. The resulting EPS amount determined at the subsidiary level (for the class of subsidiary shares owned by parent) should then be used for determining the amount of subsidiary income that must be incorporated into the control number of the parent’s own EPS computation.
The first two approaches are driven by the parent’s election (in accordance with
footnote 17 of ASC 480-10-S99-3A) to reflect the entire amount of the ASC 480
measurement adjustment as being akin to a dividend that directly (income classification
— entire adjustment method) or indirectly (equity classification — entire adjustment
method) affects the parent’s EPS computation. The second two main approaches are driven
by the parent’s election (in accordance with footnote 17 of ASC 480-10-S99-3A) to
reflect only the excess portion of the ASC 480 measurement adjustment as being akin to a
dividend that directly (income classification — excess adjustment method) or indirectly
(equity classification — excess adjustment method) affects the parent’s EPS computation.
Each of the excess adjustment methods has acceptable subpolicies that must be elected to
clarify what component of stockholders’ equity (retained earnings or APIC) is used to
classify the base portion of the ASC 480 measurement adjustment.
While we believe that the approaches above are acceptable alternatives, we would generally expect a reporting entity to consistently apply (and appropriately disclose) the same method across its entire portfolio of less than wholly owned subsidiaries. Further, as previously noted, although the excess adjustment methods could potentially reduce the cumulative impact of a redeemable noncontrolling interest on net income attributable to the parent or the parent’s reported EPS, the cumulative focus of these approaches makes them significantly more complex to apply (which is why many reporting entities elect to apply one of the entire adjustment methods in practice). Given the significance of both net income attributable to the parent and net income attributable to the parent’s common shareholders (the control number of the parent’s EPS computation), reporting entities that elect to apply one of the excess adjustment methods should ensure that they have adequate internal control over financial reporting to minimize the risk of a material misstatement.
Entities may find the diagram and table below helpful when evaluating the potential application of the
above concepts.
Does the interest’s redemption price exceed its ASC 810-10 carrying amount4 after attribution of current-period earnings? | On a cumulative basis, has the reporting entity recorded any ASC 480-10 measurement adjustments through the end of the prior period? | Is a portion of the cumulative ASC 480-10 measurement adjustments recorded in prior periods related to a redemption price that exceeded the noncontrolling interest’s then fair value? That is, were any of the interest’s cumulative ASC 480-10 measurement adjustments classified as excess portion? | Does the interest’s redemption price exceed its fair value in the current period? | What is the current-period ASC 480-10 measurement adjustment classification? | Comments |
|---|---|---|---|---|---|
No | No | N/A | N/A | None | ASC 480-10 does not permit a redeemable noncontrolling interest’s carrying
amount to be reduced below its ASC 810-10 carrying amount (see Section 9.4.3.2).
Further, there is no cumulative prior-period ASC 480-10 measurement
adjustment that would require reversal in the current period. |
No | Yes | No | N/A | Base portion | Because the interest’s redemption price does not exceed its period-end ASC 810-10 carrying amount, the reporting entity’s cumulative ASC 480-10 measurement adjustments should equal zero. Since the reporting entity on a cumulative basis has previously recorded ASC 480-10 measurement adjustments classified as base portion, the current-period ASC 480-10 measurement adjustment that is required to adjust the interest to its ASC 810-10 carrying amount (i.e., the reversing entry) will be classified as base portion. Consequently, the current-period ASC 480-10 measurement adjustment will have no direct or indirect impact on the parent’s EPS computation. |
No | Yes | Yes | N/A | Base portion, excess portion, or both | Because the interest’s redemption price does not exceed its period-end ASC
810-10 carrying amount, the reporting entity’s cumulative ASC 480-10
measurement adjustments should equal zero. Since the reporting entity has
previously recorded on a cumulative basis ASC 480-10 measurement adjustments
classified as base portion, excess portion, or both, the current-period ASC
480-10 measurement adjustment that is required to adjust the interest to its
ASC 810-10 carrying amount (i.e., the reversing entry) will be classified as
base portion, excess portion, or both in amounts that equal and offset the
cumulative amounts classified as such in prior periods.5,6 Only the excess portion (if any) of the current-period ASC 480-10
measurement adjustment will have a direct or indirect impact on the parent’s
EPS computation. |
Yes | No | N/A | No | Base portion | Because the interest’s redemption price exceeds its period-end ASC 810-10
carrying amount, the reporting entity’s cumulative ASC 480-10 measurement
adjustments should equal the excess of the interest’s redemption price over
its ASC 810-10 carrying amount. Since the reporting entity has not
previously recorded on a cumulative basis any ASC 480-10 measurement
adjustments and the interest’s redemption price is less than its fair value,
the current-period ASC 480-10 measurement adjustment that is required to
adjust the interest to its redemption price will be classified as base
portion and will not have a direct or indirect impact on the parent’s EPS
computation.5,6 |
Yes | No | N/A | Yes | Base portion, excess portion, or both | Because the interest’s redemption price exceeds its period-end ASC 810-10
carrying amount, the reporting entity’s cumulative ASC 480-10 measurement
adjustments should equal the excess of the interest’s current-period
redemption price over its current-period ASC 810-10 carrying amount. Since
the reporting entity has not previously recorded on a cumulative basis any
ASC 480-10 measurement adjustments and the interest’s redemption price
exceeds its fair value, the current-period ASC 480-10 measurement adjustment
that is required to adjust the interest to its redemption price will be
classified as base portion, excess portion, or both.5,6 Only the
excess portion (if any) will have a direct or indirect impact on the
parent’s EPS computation. |
Yes | Yes | No | No | Base portion | Because the interest’s redemption price exceeds its period-end ASC 810-10 carrying amount, the reporting entity’s cumulative ASC 480-10 measurement adjustments should equal the excess of the interest’s current-period redemption price over its current-period ASC 810-10 carrying amount. The redemption price’s status below the interest’s fair value requires the reporting entity’s ASC 480-10 measurement adjustments to be classified entirely as base portion on a cumulative basis. Since the reporting entity has not classified on a cumulative basis any portion of its ASC 480-10 measurement adjustments as excess portion, 100 percent of the current-period ASC 480-10 measurement adjustment that is required to adjust the interest to its redemption price will be classified as base portion. Consequently, the current-period ASC 480-10 measurement adjustment will have no direct or indirect impact on the parent’s EPS computation. |
Yes | Yes | No | Yes | Base portion, excess portion, or both | Because the interest’s redemption price exceeds its period-end ASC 810-10
carrying amount, the reporting entity’s cumulative ASC 480-10 measurement
adjustments should equal the excess of the interest’s current-period
redemption price over its current-period ASC 810-10 carrying amount. The
redemption price’s status above the interest’s fair value requires the
reporting entity’s ASC 480-10 measurement adjustments to be classified on a
cumulative basis as base portion and excess portion.5,6 The
reporting entity will classify the portion of its current-period ASC 480-10
measurement adjustments as base portion, excess portion, or both in the
amounts necessary to ensure that cumulative classification is correct. Only
the excess portion (if any) of the current-period ASC 480-10 measurement
adjustment will have a direct or indirect impact on the parent’s EPS
computation. |
Yes | Yes | Yes | No | Base portion, excess portion, or both | Because the interest’s redemption price exceeds its period-end ASC 810-10
carrying amount, the reporting entity’s cumulative ASC 480-10 measurement
adjustments should equal the excess of the interest’s current-period
redemption price over its current-period ASC 810-10 carrying amount. The
redemption price’s status below the interest’s fair value requires the
reporting entity’s ASC 480-10 measurement adjustments to be classified on a
cumulative basis as only base portion.5 The reporting entity will
classify the portion of its current-period ASC 480-10 measurement
adjustments as base portion, excess portion, or both in the amounts
necessary to ensure that cumulative classification is correct.6
Only the excess portion (if any) of the current-period ASC 480-10
measurement adjustment will have a direct or indirect impact on the parent’s
EPS computation. |
Yes | Yes | Yes | Yes | Base portion, excess portion, or both | Because the interest’s redemption price exceeds its period-end ASC 810-10
carrying amount, the reporting entity’s cumulative ASC 480-10 measurement
adjustments should equal the excess of the interest’s current-period
redemption price over its current-period ASC 810-10 carrying amount. The
redemption price’s status above the interest’s fair value requires the
reporting entity’s ASC 480-10 measurement adjustments to be classified on a
cumulative basis as base portion and excess portion.5 The
reporting entity will classify the portion of its current-period ASC 480-10
measurement adjustments as base portion, excess portion, or both in the
amounts necessary to ensure that cumulative classification is
correct.6 Only the excess portion (if any) of the
current-period ASC 480-10 measurement adjustment will have a direct or
indirect impact on the parent’s EPS computation. |
We believe that the acceptability of the income classification and equity classification methods (provided
that the method selected is consistently applied across the parent’s entire portfolio of less than wholly
owned subsidiaries) is consistent with the diversity in practice acknowledged by the SEC staff in footnote
20 of ASC 480-10-S99-3A, which states, in part:
The SEC staff understands that when a noncontrolling interest is redeemable at other than fair value some
registrants consider the terms of the redemption feature in the calculation of net income attributable to
the parent (as reported on the face of the income statement), while others only consider the impact of the
redemption feature in the calculation of income available to common stockholders of the parent (which is the
control number for earnings per share purposes).
Note that unless otherwise indicated, all of the adjustment methods, as well as
Examples 9-6 through 9-8,
presume that the common-share noncontrolling interest is redeemable by the subsidiary
itself (as opposed to being redeemable or guaranteed by the parent). In a manner
consistent with this presumption, and as illustrated in Examples 9-6 through 9-8, the financial statements
of Subsidiary H are directly affected by the ASC 480 measurement adjustment that is used
to record the redemption feature held by Entity I (the noncontrolling interest holder).
Once recorded by H, the entire impact of the ASC 480 measurement adjustment is
attributed to Company G as the sole holder of H’s nonredeemable common shares
(i.e., G’s controlling interest in H). If I’s common-share noncontrolling interest were
redeemable directly by the parent, H’s financial statements would not be affected by the
ASC 480 measurement adjustment; rather, the entire amount of such adjustment would be
directly attributed to G as a consolidating entry. Thus, although the mechanics may be
different, we would expect the accounting outcomes to be the same on a consolidated
basis when the adjustment methods illustrated in Examples 9-6 through 9-8 are applied, regardless of
whether the common-share noncontrolling interest is redeemable by the subsidiary itself
or by the parent.
Connecting the Dots
As noted in Chapter
3, noncontrolling interests exist only from the perspective of the
parent that prepares consolidated financial statements. Accordingly, classification
of ASC 480 offsetting entries in net income attributable to the parent, retained
earnings, or APIC under any of the adjustment methods outlined above refers to the
accounts presented in the parent’s consolidated financial statements. Further, the
EPS discussion that accompanies the description of each adjustment method presumes
that the common-share noncontrolling interest is redeemable by the subsidiary that
issued the interest (as opposed to the subsidiary’s parent). As with all
consolidated reporting, achieving the outcomes summarized above depends on a
combination of the subsidiary’s own accounting policies and the subsequent
consolidation and eliminating entries applied during the consolidation process to
achieve the consolidated financial reporting results described in the illustrative
examples below. Preparers looking for guidance applicable to the preparation of the
subsidiary’s stand-alone financial statements should refer to ASC 480-10-S99-3A(15)
and ASC 480-10-S99-3A(21).
9.4.4.2.1 Illustrative Examples of Adjustment Methods
9.4.4.2.1.1 Application of Entire Adjustment Methods Related to Income Classification and Equity Classification, Respectively
Example 9-6
Assume the following:
- Company G is the parent of Subsidiary H.
- Entity I holds a 20 percent noncontrolling interest in the common shares of H, which it acquired from G on January 1, 20X6, for $1.1 million (which is the initial carrying amount of the noncontrolling interest).
- The noncontrolling interest is redeemable at the option of I at a formulaic redemption price that does not equal fair value.
- Company G has elected to use the immediate method to record ASC 480 measurement adjustments.
- Company G determines the fair value of I’s noncontrolling interest at the end of each reporting period.
- Neither G nor H has any outstanding securities other than those described above.
- There are no intercompany transactions between G and H that require the elimination of intercompany profit or loss.
- Company G has sufficient retained earnings to cover any portion of ASC 480 offsetting entries that are classified in retained earnings.
- To classify its ASC 480 offsetting entry and calculate EPS, G applies either (1) the income classification — entire adjustment method or (2) the equity classification — entire adjustment method.
The parties’ respective interests are illustrated in the diagram below.
The following amounts will be relevant to G’s financial reporting for the periods ended 20X6, 20X7, 20X8, and
20X9 (all numbers in thousands):
20X6
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment/Offsetting Entry
For the period ended December 31, 20X6, G uses the journal entries below to subsequently measure I’s
noncontrolling interest in H.
EPS Impact
Income Classification — Entire Adjustment Method
For the period ended December 31, 20X6, and each subsequent period presented in this example, because net
income (loss) attributable to the noncontrolling interest directly affects net income attributable to G’s common
shareholders, use of the income classification — entire adjustment method does not require additional
adjustments to the control number of G’s EPS computation. Company G will report net income attributable to G
of $1,797,000, as shown in the table below.
Equity Classification — Entire Adjustment Method
Company G first applies the two-class method at the subsidiary level, recognizing the entire amount of the ASC
480 offsetting entry as an adjustment to the control number in H’s EPS computation. Company G then uses
the resulting EPS amount determined at the subsidiary level for the class of H shares owned by G to determine
the amount of H’s income that must be incorporated into the control number of G’s own EPS computation.
Company G will report net income attributable to G’s common shareholders (the control number for G’s EPS
computation) of $1,797,000, as shown in the table below.
For this period and all subsequent reporting periods, application of the
two-class method at the subsidiary level has been simplified by the lack
of any other participating securities or common-share equivalents at the
subsidiary or parent level.
20X7
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment/Offsetting Entry
For the period ended December 31, 20X7, G uses the journal entries below to subsequently measure I’s
noncontrolling interest in H.
EPS Impact
Income Classification — Entire Adjustment Method
Company G will report net income attributable to G of $2,133,000, as shown in the table below.
Equity Classification — Entire Adjustment Method
Company G will report net income attributable to G’s common shareholders (the control number for G’s EPS
computation) of $2,133,000, as shown in the table below.
20X8
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment/Offsetting Entry
For the period ended December 31, 20X8, G uses the journal entries below to subsequently measure I’s
noncontrolling interest in H.
EPS Impact
Income Classification — Entire Adjustment Method
Company G will report net income attributable to G of $2,585,000, as shown in the table below.
Equity Classification — Entire Adjustment Method
Company G will report net income attributable to G’s common shareholders (the control number for G’s EPS
computation) of $2,585,000, as shown in the table below.
20X9
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment/Offsetting Entry
For the period ended December 31, 20X9, G uses the journal entries below to subsequently measure I’s
noncontrolling interest in H.
EPS Impact
Income Classification — Entire Adjustment Method
Company G will report net income attributable to G of $2,060,000, as shown in the table below.
Equity Classification — Entire Adjustment Method
Company G will report net income attributable to G’s common shareholders (the control number for G’s EPS
computation) of $2,060,000, as shown in the table below.
9.4.4.2.1.2 Application of Income Classification — Excess Adjustment Method (Additional Paid-In Capital or Retained Earnings)
Example 9-7
Assume the same facts as in Example 9-6, except that Company G has elected to apply
the income classification — excess adjustment method, including one of
the method’s required subpolicies (APIC or retained earnings). This
illustrative example highlights the financial reporting and EPS impact
of applying the method and each subpolicy. For ease of reference, we
have repeated the facts and figures that will be relevant to G’s
financial reporting for the periods ended 20X6, 20X7, 20X8, and
20X9.
In this example:
- Subsidiary H has 1 million common shares outstanding, of which G holds 800,000 and Entity I holds 200,000.
- Subsidiary H has no securities outstanding other than those described above.
Key figures associated with G, H, and the noncontrolling interest that I holds in H are as follows (all numbers in
thousands):
20X6
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment/Offsetting Entry
For the period ended December 31, 20X6, G uses the journal entries below to subsequently measure I’s
noncontrolling interest in H under the income classification — excess adjustment method (APIC/retained earnings).
EPS Impact
Because G has elected to apply the income classification — excess adjustment method (including one of the
method’s required subpolicies), net income attributable to G’s common shareholders will be directly affected
by the portion of the ASC 480 offsetting entry that reflects the cumulative excess (if any) of the noncontrolling
interest’s redemption price over the instrument’s fair value. Accordingly, regardless of G’s classification
(APIC or retained earnings) of the portion of the ASC 480 offsetting entry arising from
redemption prices below fair value, no additional adjustment to net income attributable to G’s common
shareholders (the control number for G’s EPS computation) is required. Specific to this period, because
100 percent of the ASC 480 measurement adjustment is related to a redemption price that is less than fair
value, none of the ASC 480 offsetting entry is classified in net income attributable to noncontrolling interests.
Accordingly, G reports net income attributable to G of $1,820,000 for 20X6, as shown in the table below.
For this period and in all subsequent reporting periods, application of the two-class method at the
subsidiary has been simplified by the lack of any other participating securities or common-share
equivalents.
20X7
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment Offsetting Entry
For the period ended December 31, 20X7, G uses the journal entries below to subsequently measure I’s
noncontrolling interest in H.
EPS Impact
The 20X7 period-end carrying amount of the noncontrolling interest is solely related to the noncontrolling
interest’s initial measurement ($1,100,000) plus cumulative attribution of earnings to the noncontrolling interest
($345,000) since this amount ($1,445,000) exceeds the noncontrolling interest’s redemption price ($1,414,000).
Consequently, 100 percent of the ASC 480 measurement adjustment for 20X7 reflects a reversal of the 20X6
ASC 480 measurement adjustment. Because the 20X6 ASC 480 measurement adjustment arose from a 20X6
redemption price ($1,278,000) that was less than the noncontrolling interest’s 20X6 fair value ($1,350,000),
the 20X6 ASC 480 measurement adjustment was classified in equity under the income classification — excess
adjustment method and did not affect net income attributable to noncontrolling interests. As a result, the
entire amount of the 20X7 ASC 480 measurement adjustment is also classified in equity and does not affect
net income attributed to G. Otherwise, G would be provided with an EPS benefit in 20X7 related to the reversal
of a 20X6 item that did not itself negatively affect the 20X6 EPS calculation. Accordingly, for 20X7, G reports net
Income attributable to G of $2,110,000, as shown in the table below.
20X8
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment/Offsetting Entry
For the period ended December 31, 20X8, G uses the journal entries below to subsequently measure I’s noncontrolling interest in H.
EPS Impact
Because 100 percent of the ASC 480 measurement adjustment for 20X8 arises from a redemption price that exceeds the redeemable noncontrolling interest’s fair value, all of the ASC 480 offsetting entry is classified in net income attributable to noncontrolling interests. Accordingly, G reports net income attributable to G of $2,585,000, as shown in the table below.
20X9
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment/Offsetting Entry
For the period ended December 31, 20X9, G uses the journal entries below to subsequently measure I’s noncontrolling interest in H.
EPS Impact
Of the ASC 480 measurement adjustment for 20X9, $23,000 is related to the amount necessary to recognize (on a cumulative basis) in net income attributable to noncontrolling interests the excess of the redemption price over the redeemable noncontrolling interest’s fair value. The remaining $17,000 of the ASC 480 offsetting entry is classified in APIC or retained earnings (depending on G’s policy election). Accordingly, for 20X9, the parent reports net income attributable to G of $2,077,000, as shown in the table below.
9.4.4.2.1.3 Application of Equity Classification — Excess Adjustment Method (Additional Paid-In Capital or Retained Earnings)
Example 9-8
Assume the same facts as in Example 9-6, except that Company G has elected to apply
the equity classification — excess adjustment method, including one of
the method’s required subpolicies (APIC or retained earnings). This
illustrative example highlights the financial reporting and EPS impact
of applying the method and each subpolicy. For ease of reference, we
have repeated the facts and figures that will be relevant to G’s
financial reporting for the periods ended 20X6, 20X7, 20X8, and
20X9.
In this example:
- Subsidiary H has 1 million common shares outstanding, of which G holds 800,000 and Entity I holds 200,000.
- Subsidiary H has no securities outstanding other than those described above.
Key figures associated with G, H, and the noncontrolling interest that I holds in H are as follows (all numbers in thousands):
20X6
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment/Offsetting Entry
For the period ended December 31, 20X6, G uses the journal entries below to subsequently measure I’s noncontrolling interest in H under the equity classification — excess adjustment method (APIC/retained earnings).
EPS Impact
Because G has elected to apply the equity classification — excess adjustment method (including one of the method’s subpolicies), net income attributable to G’s common shareholders will not be directly affected by the portion of the ASC 480 offsetting entry that reflects the excess (if any) of the noncontrolling interest’s redemption price over the instrument’s fair value. Accordingly, G recognizes the excess portion of the ASC 480 offsetting entry as an adjustment to the control number of H’s EPS computation. Company G then uses the resulting EPS amount determined at the subsidiary level for the class of H shares owned by G to determine the amount of H’s income that must be incorporated into the control number of G’s own EPS computation. Company G will report net income attributable to G’s common shareholders (the control number for G’s EPS computation) of $1,820,000, as shown in the table below.
For this period and all subsequent reporting periods, application of the two-class method at the subsidiary level has been simplified by the lack of any other participating securities or common-share equivalents.
20X7
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment/Offsetting Entry
For the period ended December 31, 20X7, G uses the journal entries below to subsequently measure I’s noncontrolling interest in H.
EPS Impact
The 20X7 period-end carrying amount of the noncontrolling interest is solely related to the noncontrolling interest’s initial measurement ($1,100,000) plus the cumulative attribution of earnings to the noncontrolling interest ($345,000) since this amount ($1,445,000) exceeds the noncontrolling interest’s redemption price ($1,414,000). Consequently, 100 percent of the ASC 480 measurement adjustment for 20X7 reflects a reversal of the 20X6 ASC 480 measurement adjustment. Because the 20X6 ASC 480 measurement adjustment arose from a 20X6 redemption price ($1,278,000) that was less than the noncontrolling interest’s 20X6 fair value ($1,350,000), the 20X6 ASC 480 measurement adjustment under the equity classification — excess adjustment method did not affect (reduce) the net income (of H) attributable to G’s shareholders. As a result, the entire amount of the 20X7 ASC 480 measurement adjustment is excluded from the net income (of H) attributable to G’s shareholders. Otherwise, G would be provided with an EPS benefit in 20X7 related to the reversal of a 20X6 item that did not itself negatively affect the 20X6 EPS calculation. Accordingly, for 20X7, G reports net income attributable to G’s shareholders of $2,110,000, as shown in the table below.
20X8
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment/Offsetting Entry
For the period ended December 31, 20X8, G uses the journal entries below to subsequently measure I’s noncontrolling interest in H.
For 20X8, all of the 20X8 ASC 480 offsetting entry is classified in retained earnings under either subpolicy of the equity classification — excess adjustment method. This is because under that method, retained earnings (or APIC in the absence of retained earnings) are used to classify the excess portion of the ASC 480 offsetting entry and for 20X8, there is no base portion of the ASC 480 offsetting entry. Further, as stated in the facts, G has sufficient retained earnings to absorb the $15,000 debit arising from the ASC 480 measurement adjustment.
EPS Impact
For 20X8, the entire ASC 480 offsetting entry arises from a redemption price in excess of the redeemable noncontrolling interest’s fair value. Accordingly, 100 percent of the ASC 480 offsetting entry is incorporated as an adjustment to the subsidiary’s two-class calculation. Further, G reports net income attributable to G’s common shareholders (the control number for G’s EPS computation) of $2,585,000 for 20X8, as shown in the table below.
20X9
ASC 810-10 Attribution Adjustment/ASC 480 Measurement Adjustment/Offsetting Entry
For the period ended December 31, 20X9, G uses the journal entries below to subsequently measure I’s noncontrolling interest in H.
Of the ASC 480 measurement adjustment for 20X9, $23,000 is related to the amount necessary to recognize (on a cumulative basis) in net income attributable to noncontrolling interests the amount by which the redemption price exceeds the redeemable noncontrolling interest’s fair value. Under the equity classification — excess adjustment method, this amount (i.e., the excess portion of the ASC 480 measurement adjustment) must be classified in retained earnings. The remaining $17,000 of the ASC 480 offsetting entry (i.e., the base portion of the ASC measurement adjustment) is classified in APIC or retained earnings (depending on G’s policy election).
EPS Impact
For 20X9, $23,000 of ASC 480 offsetting entry is the amount necessary to recognize in retained earnings (on a cumulative basis) the excess of the redemption price over the redeemable noncontrolling interest’s fair value. This amount must also be incorporated as an adjustment to the subsidiary’s two-class calculation. In 20X9, G reports net income attributable to G’s common shareholders (the control number of G’s EPS computation) of $2,077,000, as shown in the table below.
9.4.4.3 Preferred-Share Redeemable Noncontrolling Interests
Like the ASC 480 measurement adjustment used for common-share redeemable
noncontrolling interests, the ASC 480 measurement adjustment for preferred-share
redeemable noncontrolling interests is partly intended to reflect the liquidity provided
by such features and the potential for the interests to convey value to their holder in
excess of their initial carrying amount and any associated dividend rights. A reporting
entity should classify ASC 480 offsetting entries for preferred-share redeemable
noncontrolling interest by applying the same classification policy it elected for
recording preferred dividends of a subsidiary in the parent’s financial statements (see
Section 6.8). However,
unlike in situations involving ASC 480 offsetting entries for common-share redeemable
noncontrolling interests, it is not appropriate to bifurcate the periodic measurement
adjustment for preferred-share redeemable noncontrolling interests into components
corresponding to changes in redemption price in excess of fair value (i.e., the excess
portion) and changes less than fair value (i.e., the base portion). Rather, the entire
amount of the ASC 480 offsetting entry is recorded in a manner akin to the recording of
a dividend to reflect that changes in the redemption price of preferred-share redeemable
noncontrolling interests ultimately affect net assets that would otherwise be available
to common shareholders of the parent. The following classification methods may be
used:
-
Preferred-share income classification method — Use net income (loss) attributable to preferred-share noncontrolling interests to classify the entire ASC 480 offsetting entry.
-
Preferred-share equity classification method — Classify the ASC 480 offsetting entry as an adjustment to retained earnings (or APIC in the absence of retained earnings).
The method applied must be used for all preferred-share redeemable noncontrolling interests. Under either classification method, ASC 480-10-S99-3A(22) requires that “[i]f the redemption feature
was issued, or is guaranteed, by the parent, the entire [ASC 480 offsetting entry] reduces or increases
income available to common stockholders of the parent. Otherwise, the adjustment is attributed to the
parent and the noncontrolling interest.”
The example below illustrates the application of the two classification methods to preferred-share
noncontrolling interests that are redeemable by the parent.
Example 9-9
Recall the following facts from Example 9-4:
- Company A owns all of the outstanding common shares of Subsidiary B.
- On January 1, 20X7, Subsidiary B issued a preferred-share noncontrolling interest to Entity C, an unrelated third party, for $1 million. The interest represents all of B’s outstanding preferred securities.
- The preferred securities are not entitled to dividends but are redeemable by A at their holder’s option for $1.25 million beginning on December 31, 20X8 (two years after issuance).
- Company A has elected to apply the accretion method and uses the interest method to accrete the redeemable noncontrolling interest to the interest’s redemption price.
Company A has determined that an effective interest rate of 11.803 percent results in the redeemable
noncontrolling interest’s being fully accreted to its redemption price by December 31, 20X8. Company A
subsequently measures the noncontrolling interest at the following amounts:
Assume also that:
- Company A and Subsidiary B report the following net income for 20X7 and 20X8:For A, the amounts reported are exclusive of A’s investment in B.
- Company A and its subsidiary have no intercompany transactions that require elimination.
- Company A has sufficient retained earnings to cover ASC 480 offsetting entries that are classified in retained earnings.
ASC 480 Measurement Adjustment/Offsetting Entry
Company A uses the journal entries below to subsequently measure C’s noncontrolling interest in B.
EPS Impact
Preferred-Share Income Classification Method
For the periods ended December 31, 20X7, and December 31, 20X8, the income classification method will directly affect net income attributable to A, which is the starting point of A’s EPS computation. As shown in the tables below, A will report net income attributable to A of $14,318,966 and $16,455,034 in 20X7 and 20X8, respectively.
Preferred-Share Equity Classification Method
For the periods ended December 31, 20X7, and December 31, 20X8, the equity classification method will not
directly affect net income attributable to A, which is the starting point of A’s EPS computation. Consequently,
even in the absence of a common-share noncontrolling interest, A will be required to record an adjustment
to net income attributable to A to arrive at net income attributable to A’s common shareholders. As shown in
the tables below, A will report net income attributable to A of $14,437,000 and $16,587,000 in 20X7 and 20X8,
respectively, and net income attributable to A’s common shareholders of $14,318,966 and $16,455,034 for the
same periods.
Connecting the Dots
As previously discussed, a reporting entity can use either an entire adjustment
method or an excess adjustment method to classify a common-share redeemable
noncontrolling interest’s ASC 480 offsetting entry and determine the EPS impact of a
common-share redeemable noncontrolling interest’s ASC 480 measurement adjustment.
However, we believe that in circumstances such as those in Example 9-9 that involve a preferred-share redeemable
noncontrolling interest, it is not acceptable to bifurcate the ASC 480 offsetting
entry into an excess portion and a base portion. Rather, the entire amount of the
preferred-share redeemable noncontrolling interest’s ASC 480 measurement adjustment
should affect the parent’s EPS calculation directly (through application of the
income classification method) or indirectly (through application of the equity
classification method and an accompanying adjustment to net income attributable to
the parent’s common shareholders).
Example 9-9 assumes that the
preferred-share noncontrolling interest held by Entity C is redeemable by Company A,
the 100 percent owner of Subsidiary B’s common shares. Consequently, 100 percent of
the ASC 480 measurement adjustment has been attributed to A as the counterparty to
the redemption feature. If the preferred-share noncontrolling interest held by C
were redeemable by B itself, the resulting impact of the ASC 480 measurement
adjustment would be attributed to B’s common shareholder(s). Although the mechanics
may differ, because A is the sole common shareholder of B, we would expect the
accounting outcome to be the same on a consolidated basis regardless of whether the
preferred-share noncontrolling interest is redeemable by the subsidiary itself or by
the parent. If, on the other hand, B’s common shares were held by multiple investors
(rather than by A alone) and there were no other contractual arrangements that could
shift the allocation of income or loss between the common shareholders, the impact
of the ASC 480 measurement adjustment would be attributed to the parent and the
common-share noncontrolling interest holders on the basis of their common-share
ownership percentages.
9.4.4.4 Additional SEC Reporting Considerations
In accordance with SAB Topic 6.B, an SEC registrant that elects to use an equity classification method must present earnings attributable to common stockholders on the face of the consolidated statement of income “when [those earnings are] materially different in quantitative terms from reported net income or loss [attributable to the parent] or when [those earnings are] indicative of significant trends or other qualitative considerations.” Otherwise, an SEC registrant that elects to use an equity classification method can present such amounts in the footnotes to the consolidated financial statements.
Footnote 2 of SAB Topic 6.B states that “absent concerns about trends or other qualitative considerations, the [SEC] staff generally will not insist on the reporting of income or loss applicable to common stock if the amount differs from net income or loss by less than ten percent.” In accordance with SAB Topic 6.B, if adjustments between net income attributable to the parent and net income attributable to the common stockholders are material, the adjustments between the two amounts should be included on the face of the consolidated statement of income. Such adjustments, including any applicable ASC 480 measurement adjustment that has not already been recognized as a component of net income or loss attributable to the noncontrolling interest holders, should be presented on separate lines on the face of the consolidated statement of income as adjustments to reported net income attributable to the parent. The adjustments are necessary to reconcile net income attributable to the parent to net income attributable to the parent’s common stockholders, which is the control number for EPS purposes. This presentation is consistent with the presentation under the equity classification method in Example 9-9.
9.4.5 Redemption Accounting
An entity should apply the guidance in ASC 810-10-45-23 to account for the
acquisition of a noncontrolling interest. ASC 810-10-45-23 states, in part, that
“[c]hanges in a parent’s ownership interest while the parent retains its controlling
financial interest in its subsidiary shall be accounted for as equity transactions.” Step
acquisition accounting no longer applies. Refer to Sections 7.1.2 through 7.1.2.8 for additional details
on accounting for changes in a parent’s ownership interest.
9.4.5.1 Redemptions of Common-Share Noncontrolling Interests
Specifically with respect to redemptions of noncontrolling interests in the form of common shares, we
observe that reporting entities may apply different accounting policies to reflect the actual repurchase
of such interests. Some reporting entities that apply the equity classification adjustment methods first
reverse ASC 480 measurement adjustments that were previously recognized in retained earnings before
accounting for the actual redemption. Other reporting entities choose not to make such reversing
entries. These alternative policies only affect whether the excess (shortfall) of the repurchase price over
(below) the initial amount recorded to equity is reflected as a reduction (increase) in retained earnings
or a reduction (increase) in APIC. For an entity that applies a reversal policy (i.e.,
reverses previously recorded ASC 480 measurement adjustments in retained earnings before reflecting
the redemption), the reversing entry should be limited to amounts previously recognized in retained
earnings that did not affect EPS.
For more information about these equity classification adjustment methods and to
understand the extent to which they affect the reporting entity’s EPS calculation, refer
to the discussion of common-share noncontrolling interests redeemable at fair value
(Section 9.4.4.1) and the
discussion of common-share noncontrolling interests redeemable at other than fair value
(Section 9.4.4.2).
9.4.5.2 Redemptions of Preferred-Share Noncontrolling Interests
Specifically with respect to redemptions of noncontrolling interests in the form of preferred shares, ASC
260-10-S99-2 states, in part:
The SEC staff believes that the difference between the fair value of the consideration transferred to the
holders of the preferred stock and the carrying amount of the preferred stock in the registrant’s balance sheet
represents a return to (from) the preferred stockholder that should be treated in a manner similar to the
treatment of dividends paid on preferred stock.
Thus, if the price at which the preferred shares are redeemed differs from the
price stated in the redemption feature (which would already have been properly reflected
in the application of the subsequent measurement guidance discussed in Sections 9.4.3 and 9.4.4), the reporting entity should:
-
Rebalance the equity accounts between the controlling and noncontrolling interests (as discussed in Section 7.1.2.8).
-
Apply the accounting guidance in ASC 260-10-S99-2 to determine whether there is an additional EPS impact related to the difference in price.
9.4.6 Accounting for the Expiration of a Redemption Feature
If the redemption feature embedded in the noncontrolling interest expires without being exercised, the carrying amount of the noncontrolling interest should be reclassified into permanent equity of the parent. The previously recorded excess amounts should not be reversed. Specifically, ASC 480-10-S99- 3A(18) states, in part:
[T]he existing carrying amount of the equity instrument should be reclassified to permanent equity at the date of the event that caused the reclassification. Prior financial statements are not adjusted. Additionally, the SEC staff believes that it would be inappropriate to reverse any adjustments previously recorded to the carrying amount of the equity instrument (pursuant to paragraphs 14–16) in conjunction with such reclassifications.
9.4.7 Accounting for the Deconsolidation of a Subsidiary
ASC 480-10 — SEC Materials — SEC Staff Guidance
SEC Staff Announcement: Classification and Measurement of Redeemable
Securities
S99-3A(19) Section
810-10-40 provides guidance on the measurement of the gain or loss that is
recognized in net income when a parent deconsolidates a subsidiary. As
indicated in Paragraph 810-10-40-5, that gain or loss calculation is impacted
by the carrying amount of any noncontrolling interest in the former
subsidiary. Since adjustments to the carrying amount of a noncontrolling
interest from the application of paragraphs 14–16 do not initially enter into
the determination of net income, the SEC staff believes that the carrying
amount of the noncontrolling interest that is referred to in Paragraph
810-10-40-5 should similarly not include any adjustments made to that
noncontrolling interest from the application of paragraphs 14–16. Rather,
previously recorded adjustments to the carrying amount of a noncontrolling
interest from the application of paragraphs 14–16 should be eliminated in the
same manner in which they were initially recorded (that is, by recording a
credit to equity of the parent).
When a subsidiary with a redeemable noncontrolling interest is deconsolidated, the issuer
reverses any previous adjustments to the carrying amount of the noncontrolling interest
that it has made in accordance with the temporary equity guidance. Any gain or loss on
deconsolidation under ASC 810 is calculated on the basis of the carrying amount of the
noncontrolling interest after previous temporary equity adjustments have been eliminated
against equity. An entity is required to disclose the amount credited to equity of the
parent upon the deconsolidation of the subsidiary in accordance with ASC
480-10-S99-3A(19).
Footnotes
2
As required under ASC 480-10-S99-3A(14), the “redemption amount at
each balance sheet date should also include amounts representing dividends not
currently declared or paid but which will be payable under the redemption features
or for which ultimate payment is not solely within the control of the registrant
(for example, dividends that will be payable out of future earnings).”
3
Since the noncontrolling interest is currently redeemable, once
the ASC 810-10 attribution adjustment is recorded (Chapter 6),
the noncontrolling interest should be adjusted to the maximum
redemption amount (if higher) after dividends payable upon
redemption are taken into account (ASC 480-10-S99-3A(14)).
4
As used in this table, “ASC 810-10 carrying amount”
refers to the interest’s carrying amount after the cumulative
attribution of earnings under ASC 810-10 but exclusive of any ASC 480-10
measurement adjustments.
5
Cumulative classification of ASC 480-10 measurement
adjustments as base portion, excess portion, or both depends on the
interest’s (1) current-period ASC 810-10 carrying amount as compared
with its redemption price and (2) fair value.
6
Classification of an individual reporting period’s ASC
480-10 measurement adjustment will be determined by comparing amounts
classified (on a cumulative basis) as base portion or excess portion
through the end of the prior reporting period with amounts required to
be so classified (on a cumulative basis) at the end of the current
reporting period. Consequently, amounts classified as base portion,
excess portion, or both may be positive or negative in any given
reporting period.
9.5 Disclosures Related to Redeemable Noncontrolling Interests
As discussed in Connecting the
Dots in Section
9.3, the guidance in ASC 480-10-S99-3A applies to all SEC registrants
and can also be elected by entities that are not SEC registrants. The disclosure
requirements outlined below are applicable to all entities applying the guidance in
ASC 480-10-S99-3A.
9.5.1 Equity Reconciliation Disclosures Related to Redeemable Noncontrolling Interests
ASC 810-10
50-1A A
parent with one or more less-than-wholly-owned
subsidiaries shall disclose all of the following for
each reporting period: . . .
c. Either in the consolidated statement of
changes in equity, if presented, or in the notes
to consolidated financial statements, a
reconciliation at the beginning and the end of the
period of the carrying amount of total equity (net
assets), equity (net assets) attributable to the
parent, and equity (net assets) attributable to
the noncontrolling interest. That reconciliation
shall separately disclose all of the
following:
-
Net income
-
Transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners
-
Each component of other comprehensive income. . . .
SEC Regulation S-X, Rule 3-04
Changes in
stockholders’ equity and noncontrolling
interests.
An analysis of the changes in each
caption of stockholders’ equity and noncontrolling
interests presented in the balance sheets shall be given
in a note or separate statement. This analysis shall be
presented in the form of a reconciliation of the
beginning balance to the ending balance for each period
for which a statement of comprehensive income is
required to be filed with all significant reconciling
items described by appropriate captions with
contributions from and distributions to owners shown
separately. Also, state separately the adjustments to
the balance at the beginning of the earliest period
presented for items which were retroactively applied to
periods prior to that period. With respect to any
dividends, state the amount per share and in the
aggregate for each class of shares. Provide a separate
schedule in the notes to the financial statements that
shows the effects of any changes in the registrant’s
ownership interest in a subsidiary on the equity
attributable to the registrant.
As discussed in Section
8.5, ASC 810-10-50-1A(c) requires a parent entity with one or
more subsidiaries that are less than wholly owned to present a reconciliation of
the beginning and ending balances of (1) total equity, (2) equity attributable
to the parent, and (3) equity attributable to the noncontrolling interest for
each reporting period. SEC Regulation S-X, Rule 3-04, requires SEC registrants
to provide a similar reconciliation “for each period for which an income
statement is required to be filed.” In their interim filings, SEC registrants
with noncontrolling interests should provide, as required under ASC
810-10-50-1A(c), equity reconciliations for the period between the end of the
preceding fiscal year and the end of the most recent fiscal quarter, as well as
the corresponding periods of the preceding fiscal year.
Because ASC 480-10-S99-3A does not change the conclusion in ASC 810-10-45-15 and 45-16 that noncontrolling interests represent equity in the consolidated financial statements of the parent, redeemable noncontrolling interests remain subject to the disclosure and reconciliation requirements of ASC 810-10-50-1A(c) and Rule 3-04 even if such interests are classified in the temporary equity section of the reporting entity’s balance sheet.
An entity can satisfy the equity reconciliation disclosure requirements of ASC 810-10-50-1A(c) and Rule
3-04 by applying either of the following disclosure alternatives:
- Disclosure Alternative 1 — Provide a separate consolidated statement of changes in stockholders’ equity. There are several acceptable approaches for preparing the separate consolidated statement of changes in stockholders’ equity. Two acceptable approaches are illustrated in Example 9-10.
- Disclosure Alternative 2 — Provide footnote disclosure.
When reconciling redeemable noncontrolling interests, entities should consider the following:
- Common-share redeemable noncontrolling interests — Consideration should be given to providing separate reconciliations (e.g., separate columns in a consolidated statement of changes in stockholders’ equity) when a parent entity has different types of common-share redeemable noncontrolling interests (e.g., noncontrolling interests redeemable at fair value and noncontrolling interests redeemable at other than fair value).
- Preferred-share redeemable noncontrolling interests — In accordance with ASR 268 (as incorporated into ASC 480-10-S99-1), the reconciliation of changes in preferred-share redeemable noncontrolling interest should be presented in a footnote separately from the reconciliation of other equity balances. It would not be appropriate to include the reconciliation of a redeemable preferred security within a consolidated statement of changes in stockholders’ equity.
- Totals that include redeemable noncontrolling interests — The SEC staff has indicated that on the basis of ASR 268, it would object to a registrant’s presentation in an equity reconciliation of any total that combines the carrying amount of redeemable equity securities classified in temporary equity (including redeemable noncontrolling interests) with total permanent equity. In addition, the SEC staff would object to the presentation of any such total irrespective of the form of the noncontrolling interest (i.e., common-share or preferred-share) and regardless of whether the equity reconciliation is presented in a separate statement of changes in stockholders’ equity or in a footnote.
Example 9-10
Assume the following facts, which are similar to those in Examples 8-1, 8-2, and 8-3:
- Company D, an SEC registrant, is the parent of Subsidiaries E and F, which are both capitalized with only common stock.
- Other than the noncontrolling interests held by third parties, all equity interests issued by E and F are held by D.
- 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 (on E’s books) 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 (on F’s books) 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.
Also assume the following additional facts:
- Company D is the parent of Subsidiary G, which is capitalized with only common stock. However, G has also issued a common-share redeemable noncontrolling interest to a third party. This interest is classified in temporary equity in accordance with ASC 480-10-S99-3A.
- Other than the redeemable noncontrolling interest held by the third party, all equity interests issued by G are held by D.
- At the beginning of 20X8, D owned 80 percent of G’s common stock and consolidated G. The remaining 20 percent of G’s common stock was owned by the third party and was redeemable outside of D’s control. Therefore, this remaining 20 percent was classified in temporary equity. Company D applied the equity classification — entire adjustment method as defined in Section 9.4.4.2.
- As of December 31, 20X8, the redeemable noncontrolling interest in G was recorded on D’s consolidated balance sheet in the amount of $25,700, which exceeds the interest’s ASC 810-10 carrying amount by $2,000. This excess represents the cumulative amount of ASC 480-10 measurement adjustments that D recorded under the equity classification — entire adjustment method through December 31, 20X8.
- On January 2, 20X9, D repurchased 50 percent of the redeemable noncontrolling interest in G for $13,350. This repurchase price differs from the noncontrolling interest’s stated redemption price and also exceeds the amount recorded for the noncontrolling interest on D’s December 31, 20X8, balance sheet (i.e., the sum of the interest’s $11,850 ASC 810-10 carrying amount and the cumulative $1,000 ASC 480-10 measurement adjustment recorded for this repurchased portion of the redeemable noncontrolling interest for periods through December 31, 20X8).
- For the period ending December 31, 20X9, D recorded a $400 attribution adjustment to the redeemable noncontrolling interest’s ASC 810-10 carrying amount and a $1,150 ASC 480-10 measurement adjustment to the redeemable noncontrolling interest in G outstanding for the entire year (i.e., the remaining 50 percent that was not repurchased). After these adjustments were made, the redeemable noncontrolling interest was recorded on D’s consolidated balance sheet in the amount of $14,400, which exceeds the interest’s ASC 810-10 carrying amount by $2,150.
The parties’ respective interests are illustrated in the diagram below.
As of January 1, 20X8:
Disclosure Alternative 1 — Separate Consolidated Statement of Changes in Stockholders’ Equity
Company D may comply with the equity reconciliation disclosure requirements of ASC 810-10-50-1A(c) and SEC
Regulation S-X, Rule 3-04, by presenting a separate consolidated statement of changes in stockholders’ equity.
The illustrative disclosures below have been adapted from ASC 810-10-55-4L. Although these illustrations
include an equity reconciliation for only one period, parent entities are required to present comparative equity
reconciliations for the appropriate prior period(s). Also, while ASC 810-10-50-1A(c) requires the inclusion of
certain items within the equity reconciliation, it stops short of prescribing a specific format. Thus, other formats
may be acceptable.
The two approaches described below (“Approach 1” and “Approach 2”) are acceptable for D to use when
presenting its consolidated statement of changes in stockholders’ equity. In these approaches, we have assumed for simplicity that (1) the beginning equity balances are the same as in Example 8-3 and (2) G did not have cash flow hedges or foreign currency translation adjustments.
Approach 1
Under Approach 1, D would present a consolidated statement of changes in
stockholders’ equity that includes a separate column for
the redeemable noncontrolling interests (see table
below).7 Company D should not include totals that combine
the beginning or ending balances of the redeemable
noncontrolling interests and total permanent
stockholders’ equity.
Approach 2
Under Approach 2, D would present a consolidated statement of changes in
stockholders’ equity that does not include a column for
the redeemable noncontrolling interests (see the table
below).
In the manner illustrated below, D should then present a reconciliation of the
changes in the redeemable noncontrolling interests
either (1) at the bottom of the consolidated statement
of changes in stockholders’ equity8 or (2) in the notes to the consolidated financial
statements.
Disclosure Alternative 2 — Footnote Disclosure of Changes in Stockholders’ Equity
Company D may comply with the equity reconciliation disclosure requirements of
ASC 810-10-50-1A(c) and SEC Regulation S-X, Rule 3-04,
by presenting a footnote that discloses a reconciliation
of equity balances. In a manner similar to the two
approaches illustrated for Disclosure Alternative 1
above, D should include in its footnote disclosure a
separate column or table to show the changes in the
carrying amount of the redeemable noncontrolling
interests.9 In its reconciliation of equity balances, D should
not include totals that combine the beginning or ending
balances of the redeemable noncontrolling interests and
total permanent stockholders’ equity.
Connecting the Dots
Although this Roadmap section addresses only the reconciliation of redeemable noncontrolling
interests, the same considerations apply to redeemable equity securities issued by the parent.
9.5.2 Effect of Changes in Parent’s Ownership Interest in Subsidiaries (Without an Accompanying Change in Control) on Redeemable Noncontrolling Interests
ASC 810-10
50-1A A
parent with one or more less-than-wholly-owned
subsidiaries shall disclose all of the following for
each reporting period: . . .
d. In notes to the consolidated financial
statements, a separate schedule that shows the
effects of any changes in a parent’s ownership
interest in a subsidiary on the equity
attributable to the parent. . . .
As discussed in Sections
9.4.2 and 9.4.3, the guidance in ASC 480-10-S99-3A may require a reporting
entity to make ASC 480 measurement adjustments to the carrying amount of
redeemable noncontrolling interests each reporting period. ASC 810-10-50-1A(d)
requires reporting entities to disclose a separate schedule for any period in
which the parent’s ownership interest in a subsidiary changes. The interaction
between ASC 810-10-50-1A(d) and ASC 480-10-S99-3A presents an interesting
question: Should the amounts disclosed in the separate schedule required by ASC
810-10-50-1A(d) include the impact of applying the measurement guidance in ASC
480-10-S99-3A to redeemable noncontrolling interests?
We believe that there are two acceptable methods for complying with these
requirements. While a reporting entity may apply one method to one type of
redeemable noncontrolling interest (e.g., common-share noncontrolling interests
redeemable at fair value) and the other method to a second type of redeemable
noncontrolling interest (e.g., common-share noncontrolling interests redeemable
at formula value), the reporting entity should consistently apply the same
method to similar redeemable noncontrolling interests. The reporting entity
should also provide adequate disclosures in the notes to the consolidated
financial statements that specify (1) its basis for the presentation of the
separate schedule and (2) how the amounts included in the separate schedule
reconcile to the consolidated balance sheet and the equity reconciliation
required by ASC 810-10-50-1A(c) (as described in Section 9.5.1).
The two disclosure methods are as follows:
- Disclosure Method 1 — A reporting entity should exclude the adjustments made as a result of applying the measurement guidance in ASC 480-10-S99-3A from the amounts included in the separate schedule required by ASC 810-10-50-1A(d). The separate schedule includes only the impact of actual repurchases or issuances of noncontrolling interests and is prepared as though ASC 480-10-S99-3A did not apply. Consequently, although the consolidated statement of changes in stockholders’ equity will reflect the reversal of previous adjustments the entity recorded as a result of applying this measurement guidance, for purposes of preparing the separate schedule required by ASC 810-10-50-1A(d), the previous adjustments should be disregarded so that the impact of purchases or sales of noncontrolling interests can be isolated. See Example 9-11.Supporters of Disclosure Method 1 believe that the separate schedule is required only when there is a change in a parent’s ownership interest in a consolidated subsidiary (i.e., when an actual repurchase occurs).
- Disclosure Method 2 — A reporting entity should include the adjustments made as a result of applying the measurement guidance in ASC 480-10-S99-3A in the amounts included in the separate schedule required by ASC 810-10-50-1A(d) (e.g., as a separate line item for such adjustments).10 The manner in which the ASC 480 measurement adjustments affect the amounts in this separate schedule will depend on the entity’s accounting policy for reflecting actual redemptions of redeemable noncontrolling interests, as illustrated in Examples 9-12 and 9-13.Supporters of Disclosure Method 2 believe that (1) ASC 810-10-50-1A(d) requires disclosure of how the parent’s equity is affected by noncontrolling interests and (2) this disclosure should be presented in a manner consistent with the amounts reported in the consolidated balance sheet.
Note that ASC 810-10-50-1A(d) does not require an entity to use a specific format to meet its disclosure
objective. The illustrative examples below are based on the format used in ASC 810-10-55-4M. Other
formats may also be acceptable.
Example 9-11
Disclosure Method 1 — ASC 480 Measurement Adjustments Excluded
Assume the same facts as in Example 9-10.
Company D would present the separate schedule required by ASC 810-10-50-1A(d)
for the year ended December 31, 20X9, as follows:11
Example 9-12
Disclosure Method 2 — ASC 480 Measurement Adjustments Included (Reversing Entry Made)
Assume the same facts as in the example above, except that Company D elects to
apply Disclosure Method 2. In addition, assume that D’s
accounting policy is to reverse the ASC 480 measurement
adjustments (associated with any repurchased shares)
previously recorded in retained earnings in prior
periods before recording its repurchase of redeemable
noncontrolling interests in the current period (i.e., D
treats the repurchase as a transfer between retained
earnings and APIC in the manner described in Section
9.4.5.1). Note also that because the
common-share noncontrolling interests are redeemable at
fair value, ASC 480 measurement adjustments previously
recorded in retained earnings were not included in D’s
calculation of EPS. Consequently, the limitations on the
reversal entries that are discussed in Section
9.4.5.1 do not apply. Company D records
the following reversing entry as of December 31,
20X8:
Company D would present the separate schedule required by ASC 810-10-50-1A(d)
for the year ended December 31, 20X9, as follows:12
Example 9-13
Disclosure Method 2 — ASC 480 Measurement Adjustments Included (No Reversing Entry Made)
Assume the same facts as in Example 9-11, except that Company D
elects Disclosure Method 2. In addition, assume that D’s
accounting policy is not to
reverse the ASC 480 measurement adjustments (associated
with any repurchased shares) previously recorded in
retained earnings in prior periods before recording its
repurchase of redeemable noncontrolling interests in the
current period (i.e., D does not treat the repurchase as
a transfer between retained earnings and APIC in the
manner described in Section
9.4.5.1).
Company D would present the separate schedule required by ASC 810-10-50-1A(d)
for the year ended December 31, 20X9, as follows:13
Footnotes
7
As previously discussed, this
approach would not be acceptable if the redeemable
noncontrolling interests were in the form of
preferred stock. In accordance with ASR 268, the
reconciliation of a redeemable preferred security
should be provided in a separate note to the
consolidated financial statements.
8
See footnote 7.
9
When the equity reconciliation
is included in a footnote, any redeemable
noncontrolling interest in the form of preferred
stock should be shown separately from the
reconciliation of all other equity balances in
accordance with SEC Regulation S-X, Rule
5-02(31).
10
Reporting entities applying one of the
income classification adjustment methods described in
Section 9.4.4.2 will have already included
at least a portion of such adjustment in net income
attributable to the parent. In these situations, there is no
need to include the portion of the ASC 480 measurement
adjustment included in net income attributable to the parent
as an additional amount in the schedule. To do so would
result in double counting.
11
Note that although D must
provide this reconciliation on an interim and
annual basis for all periods in which it presents
a consolidated statement of income, only one year
is shown.
12
See footnote 11.
13
See footnote 11.