A Roadmap to Accounting for Noncontrolling Interests

1 A Roadmap to Accounting for Noncontrolling InterestsJuly 2020iiThe FASB Accounting Standards Codification material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, and is reproduced with publication contains general information only and Deloitte is not, by means of this publication, rendering Accounting , business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

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3 All rights Publications in Deloitte s Roadmap SeriesBusiness CombinationsBusiness Combinations SEC Reporting ConsiderationsCarve-Out TransactionsComparing IFRS Standards and GAAPC onsolidation Identifying a Controlling Financial InterestContingencies and Loss RecoveriesContracts on an Entity s Own EquityConvertible DebtCurrent Expected Credit LossesDisposals of Long-Lived Assets and Discontinued OperationsDistinguishing Liabilities From EquityEarnings per ShareEnvironmental Obligations and Asset Retirement Obligations Equity Method Investments and Joint VenturesEquity Method Investees SEC Reporting ConsiderationsFair Value Measurements and DisclosuresForeign Currency Transactions and TranslationsIncome TaxesInitial Public OfferingsLeasesNoncontrolling InterestsNon-GAAP Financial MeasuresRevenue RecognitionSEC Comment Letter Considerations, Including Industry InsightsSegment ReportingShare-Based Payment AwardsStatement of Cash FlowsivAcknowledgmentsRob Comerford and Andrew Winters oversaw the development of the inaugural (2017) edition of this publication under the leadership of Brandon Coleman.

4 Andrew Pidgeon led the preparation of this 2020 edition under the guidance of Andrew P. and Andrew W. are grateful for the meaningful contributions of Alison Hefele and Jack Widmann to this edition. They also wish to extend their appreciation to Teri Asarito, Sandy Cluzet, Geri Driscoll, David Eisenberg, and David Frangione for delivering the first-class editorial and production effort that we have come to rely xContacts xiChapter 1 Overview Scope Intercompany Matters With Noncontrolling Interest Implications Initial Recognition and Measurement of Noncontrolling Interests Attribution of Income, Other Comprehensive Income.

5 And Cumulative Translation Adjustment Balances Changes in a Parent s Ownership Interest Presentation and Disclosure Redeemable Noncontrolling Interests 4 Chapter 2 Glossary of Selected Terms Accretion Method ASC 480 Measurement Adjustment ASC 480 Offsetting Entry ASC 810-10 Attribution Adjustment ASC 810-10 Carrying Amount Attribution Base Portion of the ASC 480 Measurement Adjustment Business Combination Controlling Financial Interest Downstream Transaction Equity Interests Excess Portion of the ASC 480 Measurement Adjustment Fair Value Foreign Entity Goodwill Hypothetical Liquidation at Book Value Immediate Method Noncontrolling Interest Parent/ Noncontrolling Interest Attribution Method Parent-Only Attribution Method Primary Beneficiary Reciprocal Interests Redeemable Noncontrolling Interest Reporting Entity SEC Registrant Simultaneous Equations Method Subsidiary Treasury Stock Method Upstream Transaction Variable Interest Entity Variable Interests 12 Chapter 3 Scope Portion of a Subsidiary Not Attributable to the Parent Noncontrolling Interest in a Subsidiary Owned by the Parent or Affiliate of a Reporting Entity Only Equity Interests Can Be Noncontrolling Interests Other Equity Interests Carried Interests or Profits Interests 20 Chapter 4 Intercompany Matters With Noncontrolling Interest Implications Multiple Legal Entities Representing a Single Reporting Entity Parent and

6 Subsidiary With Different Fiscal-Year-End Dates Parent and Subsidiary Accounting Policies Transactions Between Parent and Subsidiary Intercompany Transactions Intercompany Ownership Interests Subsidiary s Ownership Interest in Parent (Reciprocal Interests ) Subsidiary Reporting Subsidiary s Ownership Interest in Parent (Reciprocal Interests ) Consolidated Reporting Capitalization of Retained Earnings by a Subsidiary 25 Chapter 5 Initial Recognition and Measurement Initial Measurement of Noncontrolling Interests When a Reporting Entity First Consolidates a Partially Owned Subsidiary Noncontrolling Interests Recognized Concurrently With a Business Combination Noncontrolling Interests Recognized Concurrently With an Asset Acquisition Initial Measurement of Noncontrolling Interests When an Acquired Subsidiary Has Retained Earnings or a Deficit Noncontrolling Interests Recognized When the Reporting Entity Sells Shares in a Wholly Owned Subsidiary and Retains Control Other Considerations Related to the Initial Recognition of a Noncontrolling Interest

7 Accounting for the Issuance of a Noncontrolling Interest With Ownership Tax Benefits Separating the Benefits of Tax Credits From the Substantive Noncontrolling Interest 29viiContents Chapter 6 Attribution of Income, Other Comprehensive Income, and Cumulative Translation Adjustment Balances Attributions Disproportionate to Ownership Interests Application of the HLBV Method as a Means to Attribute (Comprehensive) Income and Loss Financial Reporting Requirements of Other Codification Topics That Affect Attributions Business Combinations Consummated Before the Effective Date of FASB Statement 141(R) (Codified in ASC 805-10) Business Combinations Consummated After the Effective Date of ASC 805-10 Attribution of Income in Carried Interest Arrangements Attribution of Losses in Excess of Carrying Amount Attribution of Eliminated Income or Loss (Other Than VIEs) Eliminating Profit (Loss) on Downstream Transactions Eliminating Profit (Loss) on Upstream Transactions Attribution of Eliminated Income or Loss (VIEs)

8 Attribution of Income in the Presence of Reciprocal Interests Attribution of Other Comprehensive Income or Loss Impact of FASB Statement 160 Transition Method on Attribution of OCI in Subsequent Periods Foreign Currency Translation Adjustments Impact of Changes to OCI or AOCI Resulting From Transition Adjustments or Changes in Accounting Principle Presentation of Preferred Dividends of a Subsidiary Noncontrolling Interests Held by Preferred Shareholders Noncontrolling Interests in Pass-Through Entities Income Tax Financial Reporting Considerations Calculation of Earnings per Share When There Is a Noncontrolling Interest Adoption of a New Accounting Standard 81 Chapter 7 Changes in a Parent s Ownership Interest Changes in a Parent s Ownership Interest Without an Accompanying Change in Control Scope Limitations for Certain Decreases in Ownership Without an Accompanying Change in Control Noncontrolling Interests Arising From Transfers of Real Estate Accounted for as a Profit-Sharing Arrangement Transfer of Equity Interests in a Subsidiary Holding Financial Assets Model of Accounting for Changes in a Parent s Ownership Interest in a Subsidiary While the Parent Maintains Control Parent s Acquisition of Interests in Subsidiary Directly From Third Party Subsidiary s direct Acquisition of Its Equity Interests Additional Ownership Interest Obtained Through a Business Combination Acquisition of Additional Ownership Interests in a

9 Subsidiary When the Parent Obtained Control Before Adopting FASB Statement 160 Parent s Selling of Interests in a Subsidiary Directly to a Noncontrolling Interest Holder 95viiiDeloitte | A Roadmap to Accounting for Noncontrolling Interests (2020) Subsidiary s direct Issuance of Its Equity Interests to Third Parties Special Considerations Related to Transactions Involving Changes in Ownership of Preferred Shares in a Subsidiary Accounting for Costs Related to Equity Transactions With Noncontrolling Interest Holders Accounting for the Tax Effects of Transactions With Noncontrolling Shareholders Changes in a Parent s Ownership Interest With an Accompanying Change in Control 103 Chapter 8 Presentation and Disclosure Overview Balance Sheet Presentation Presentation of Income and Comprehensive Income Statement of Cash Flows Presentation Statement of Stockholders Equity Presentation Interim Equity Reconciliations for SEC Registrants Redeemable Noncontrolling

10 Interests Impact on Disclosures and Reconciliations of Stockholders Equity Comprehensive Income Requirement Disclosure of Reallocations of AOCI Between the Parent and the Noncontrolling Interest Presenting Effects of the Noncontrolling Interest in the AOCI Reclassification Adjustments Disclosure 115 Chapter 9 Redeemable Noncontrolling Interests Examples of Redeemable Noncontrolling Interests Scope of ASC 480-10-S99-3A and Interaction With ASC 810-10 Accounting for Redeemable Noncontrolling Interests Classification of Redeemable Noncontrolling Interests Initial Measurement of Redeemable Noncontrolling Interests Subsequent Measurement of Redeemable Noncontrolling Interests Sequencing of ASC 810-10 Attribution and ASC 480 Measurement Adjustments Methods of Determining ASC 480 Measurement Adjustment Amount Impact of an IPO-Triggered Mandatory Conversion Feature Illustrative Examples of Subsequent Measurement of Redeemable Noncontrolling Interests Determining the Offsetting Entry and the EPS Impact of ASC 480 Measurement Adjustments Common-Share Noncontrolling Interests Redeemable at Fair Value Common-Share Noncontrolling Interests Redeemable at Other Than Fair Value Preferred-Share Redeemable Noncontrolling Interests Additional SEC Reporting Considerations Redemption Accounting Redemptions of Common-Share Noncontrolling Interests Redemptions of Preferred-Share Noncontrolling Interests Accounting for the Expiration of a Redemption