The stated objective of consolidated monetary statements remains unchanged and “is to present, mainly for the advantage of the shareholders and creditors of the parent, the benefits of operations and the monetary position of a parent and all its subsidiaries as if the group have been a single financial entity.”
The common consolidation policy also remains unchanged from ARB 51 (as amended by SFAS No. 94). Consolidated monetary statements are commonly far more meaningful than separate statements and, consequently, are important when 1 organization has a controlling monetary interest in other firms. Ownership of a majority voting interest is the usual situation for a controlling monetary interest. As a result, consolidation is ordinarily indicated when 1 organization owns far more than 50 % of the outstanding voting shares of one more organization. As previously essential by SFAS No. 94, all majority-owned subsidiaries need to be consolidated. Having said that, a subsidiary is not consolidated if the majority owner is unable to exercising handle. (Note that, though handle may perhaps be obtained below the provisions of the EDs by indicates other than ownership, the ED focuses on handle by way of majority ownership.)
For the most aspect, consolidation procedures stay as specified in ARB 51. Having said that, some crucial adjustments and clarifications are integrated in the ED: a. When handle of a subsidiary is obtained through a fiscal period, only the subsidiary’s revenues, costs, gains, and losses that take place following handle is obtained ought to be integrated in the consolidated monetary statements (eliminating other options permitted by ARB 51). b. Any shares of the parent held by a subsidiary need to be eliminated in consolidation. c. All intercompany profit or loss need to be eliminated regardless of the existence of a noncontrolling interest, and this elimination need to be allocated amongst the controlling and noncontrolling interest, if any (exactly where ARB 51 permitted allocation rather than requiring it). d. The ED clarifies that consolidated monetary statements are essential as the common-objective monetary statements of firms getting 1 or far more subsidiaries, and that parent-only monetary statements are not a valid substitute.
ARB 51 permits the noncontrolling interest in a subsidiary’s assets to be reported in the consolidated monetary statements as a liability, equity, or amongst the two categories (as is at present typical in practice). The ED demands the noncontrolling interest to be reported in equity separately from the parent’s stockholders’ equity. A recommended feasible caption is “noncontrolling interest in subsidiaries.”
Net revenue or loss and each and every element of other extensive revenue need to be attributed to the controlling and noncontrolling interests primarily based on their relative ownership interests. If a contractual arrangement specifies some other attribution arrangement, then these components of extensive revenue would be attributed in that manner.
If losses attributable to the controlling and noncontrolling interests in a consolidated subsidiary exceed their interests in the subsidiary, added losses will continue to be attributed to these interests, even if the noncontrolling interest’s share of these losses exceeds the equity attributable to the noncontrolling interest.
After a parent has obtained handle of a subsidiary, adjustments in ownership interests in that subsidiary that do not have an effect on handle are accounted for as equity transactions, and, consequently, no get or loss is recognized in the consolidated revenue statement. When such a alter in ownership happens, the carrying quantity of the noncontrolling interest is adjusted to reflect its new ownership level, and any distinction amongst the adjustment and the fair worth of the consideration paid or received is recognized in equity. The alter has no impact on consolidated net revenue or on the numerator in the calculation of consolidated earnings per share.
If there is a alter in the relative ownership interests of the controlling and noncontrolling interests in a subsidiary for which goodwill has been recognized at the date of acquisition, the goodwill need to be reattributed to the controlling and noncontrolling interests primarily based on the relative carrying amounts of the goodwill previously allocated to them. The original allocation of goodwill may perhaps not necessarily have been in the ownership ratio when allocated at acquisition in accordance with SFAS No. 141R.
If handle of a subsidiary is lost by any indicates (e.g., sale, contractual agreement), a get or loss is recognized in consolidated net revenue as the distinction amongst the following two things (para. 27): a. The aggregate of (1) the fair worth of the proceeds, if any, from the transaction that resulted in the loss of handle and (two) the fair worth of any retained investment in the former subsidiary at the date handle is lost b. The parent’s interest in the former subsidiary’s net assets at the date handle is lost
If the subsidiary is partially owned at the time the parent loses handle, the noncontrolling interest’s share of the carrying quantity of the subsidiary’s net assets is derecognized against the carrying quantity of the noncontrolling interest. No get or loss is recognized with respect to the noncontrolling interest.