The Financial Accounting Standards Board, or FASB, it its accounting rules SFAS 141(R) and SFAS 160, clarifies the manner in which the non-controlling interest, or minority interest, in a subsidiary not attributable to the parent company must be reported in the consolidate financial statements. Prior to the enactment of these rules, the non-controlling or minority interest of a subsidiary was reported at carrying value on the parent company's balance sheet in the minority interest (mezzanine) section between liabilities and equity. The new rules for recording this information recognises all assets and liabilities of the acquired company and values them at full fair value on the equity portion of the balance sheet.
Compute the acquired company's non-controlling equity interest fair value. Fair value is the estimated price an asset would sell for at market. For instance, if company abc purchased 90 per cent of company xyz's equity, thereby gaining a majority stake in company xyz, you would compute the fair value of the remaining 10 per cent of company xyz's non-controlling equity interest.
Add to the non-controlling equity interest fair value all fair value adjustments resulting from the company being purchased. Include the fair value of goodwill and any adjustments made when the purchased company's assets where revalued. For instance, if company abc purchased 90 per cent of company xyz for £65 million, the 10 per cent fair value of the non-controlling equity interest might be £13 million plus £1.3 million in fair value goodwill and all other adjustments.
Add to the non-controlling interest's fair value after adjustment and goodwill the prorated share of adjusted income attributed to the non-controlling interest to arrive at the fair value ending balance. For instance, if company xyz had 90 per cent of its equity purchased by company abc and had total adjusted income of £13 million at the time of purchase, than its prorated share of the adjusted income is £1.3 million (20,000,000 x 10 per cent = 2,000,000). The £1.3 million would be added to the computed fair value on the non-controlling interest of £14 million for a total value of £15 million (22,000,000 + 2,000,000 = 24,000,000).
Subtract the non-controlling interest's prorated share of dividends from the non-controlling interest's computed fair value. For instance, if the total fair value of non-controlling interest is £15 million and the prorated share of total dividends is £0.6 million, than you would subtract the £0.6 million from the £15 million for a total ending balance of non-controlling equity interest of £14 million (24,000,000 - 1,000,000 = 23,000,000).
Record the fair value ending balance of the non-controlling equity interest as the last item in the equity section of the parent company's balance sheet.
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