Question

Research the FASB ASC codification about non-controlling interests in consolidated financial statements. Share your findings and your interpretation of the rules. Be sure to include cites from the FASB codification.

Answer 1

Non-Controlling Interest in consolidated financial statement:

The consolidated financial statement is required to prepare at the time of holding and subsidiary relation. The holding company acquire minimum 51% share of the subsidiary company to control the interest of the subsidiary company. The non-acquire portion of the subsidiary company is known as known controlling interest. This is also known as minority interest. The non-controlling interest is required to prepare properly for the purpose of the true and fair presentation of the consolidated financial statement.

The FASB ASC codification stated the proper presentation and computation of the non-controlling interest for the consolidated financial statement. The share of the share capital, post-acquisition and pre acquisition profit all are considered at the time of the computing non-controlling interest.

Lets discuss the same with an example. Suppose H ltd acquire 80% share of the S ltd. The total face value of the share is $100,000. The pre-acquisition profit is $20,000 and the post-acquisition profit is $40,000. Also the other reserves balance are $15,000. In this scenario the total non-controlling interest is calculated as follows:

The non-controlling interest is (100-80)% = 20%.

The Share Capital = (100,000*20%) = $20,000

Pre-Acquisition Profit = (20,000*20%) = $4,000

Post-Acquisition Profit = (40,000*20%) = $8,000

Other reserves = (15000*20%) = $3,000

So the total non-controlling interest = $(20,000+4,000+8,000+3,000) = $35,000

So this is the process and these should be followed at the time of calculation of the non-controlling interest. All the amount due or belongs to the minority shareholders are came under non-controlling interest at the time of preparation of the consolidated financial statement.

References:

Benston, G. J., Bromwich, M., Litan, R. E., & Wagenhofer, A. (2006). Worldwide financial reporting: The development and future of accounting standards. Oxford University Press.

Schipper, K. (2010). How can we measure the costs and benefits of changes in financial reporting standards?. Accounting and Business Research, 40(3), 309-327.