17.5 Exchanges of Nonfinancial Assets for Noncontrolling Interests
An entity should apply the guidance in ASC 610-20 to account for the
contribution of a nonfinancial asset in exchange for a noncontrolling ownership
interest in an investee.
In accordance with ASC 610-20-32-4, “the entity shall consider the
noncontrolling interest received from the counterparty as noncash consideration and
shall measure it in accordance with the guidance in paragraphs 606-10-32-21 through
32-24.” In a manner consistent with the guidance in ASC 606-10-32-21 through 32-24,
the entity would measure the noncontrolling interest at fair value at contract
inception. Any gain or loss resulting from the sale or transfer of the nonfinancial
asset should be recognized when the legal entity receiving the nonfinancial asset
obtains control of the asset (as determined on the basis of an evaluation of the
indicators in ASC 606-10-25-30). For additional information about recognizing gains
or losses on the sale (or contribution) of nonfinancial assets, see Section 17.4.
Example 17-5
Investor A and Investor B form a real estate venture.
Investor A contributes cash in exchange for a 50 percent
interest in the venture; B contributes real estate in
exchange for the other 50 percent of the venture and
receives the cash contribution made by A. Since the real
estate is neither a business nor a nonprofit activity, the
transaction is within the scope of ASC 610-20. First, B
considers whether, after the transaction, it retains a
controlling interest in the joint venture under ASC 810 and
concludes that it does not. Next, B determines that control
of the real estate has been transferred under ASC 606.
Accordingly, B derecognizes the real estate, recognizes the
full gain or loss for the difference between the
consideration received (i.e., both the cash consideration
and the fair value of the 50 percent interest in the
venture) and the carrying amount of the assets sold, and
records its investment in the real estate venture at fair
value.