📖 Overview
This standard defines when to consolidate other entities, including subsidiaries and variable interest entities (VIEs). Uses the control (voting interest) model and the VIE model.
🎯 Scope
This standard applies to the accounting treatment for consolidation, including:
- Determining whether an entity should be consolidated.
- Variable Interest Entities (VIEs).
- Subsidiaries.
- Non-Controlling Interests.
⚙️ Key Principles
1. **Control Principle**:
- An entity is consolidated when the reporting entity has control.
- **Control requires three elements**:
- Power over the investee.
- Exposure to variable returns from involvement with the investee.
- Ability to use power to affect returns.
2. **Two Consolidation Models**:
- **Voting Interest Model**: For regular entities (more than 50% voting rights).
- **Variable Interest Entity (VIE) Model**: For entities not controlled through voting rights.
3. **Non-Controlling Interests**:
- Presented as part of equity, separate from parent shareholders' equity.
- Share of subsidiary profits and losses is allocated to NCI.
📏 Measurement
**Consolidation:**
- Assets, liabilities, equity, revenues, and expenses of parent and subsidiaries are combined at 100%.
- Intercompany transactions and balances are eliminated.
- Investment in subsidiary is eliminated against subsidiary equity.
**Non-Controlling Interests:**
- Measured at initial recognition using one of two methods:
- Fair Value.
- Proportionate share of identifiable net assets.
**Variable Interest Entities (VIEs):**
- Determine whether the entity is the Primary Beneficiary.
- Primary Beneficiary has:
- Power over the most significant activities.
- Right to receive significant benefits.
- Obligation to absorb significant losses.
✅ Recognition
A subsidiary is recognized in consolidated financial statements when control is acquired.
A subsidiary is derecognized when control is lost.
Upon loss of control, a gain or loss is recognized in the income statement.
Intercompany transactions (e.g., sales, purchases, loans, dividends) are fully eliminated.
📊 Presentation
**On the Consolidated Balance Sheet:**
- Non-Controlling Interests appear within equity, separate from parent shareholders' equity.
**On the Consolidated Income Statement:**
- Net profit is presented and allocated between:
- Parent shareholders' share.
- Non-Controlling Interests share.
**Note Disclosures:**
- List of significant subsidiaries.
- Ownership percentage and voting rights.
- Restrictions on transferring funds from subsidiaries.
- For VIEs: Description of the entity, assets and liabilities, financial support provided.
📝 Disclosure Requirements
Disclosures required:
- List of significant subsidiaries (name, country of incorporation, ownership percentage).
- Nature of relationship between parent and subsidiaries.
- Restrictions on the ability of subsidiaries to transfer funds to the parent.
- Any changes in ownership interest that do not result in loss of control (treated as equity transactions).
- Loss of control of a subsidiary (gain or loss, how calculated).
- **For VIEs**:
- Description of the entity and nature of risks.
- Assets and liabilities on the consolidated balance sheet.
- Any financial support provided without contractual obligation.
🔗 Related Standards
ASC 805 (Business Combinations), ASC 810-10 (Overall Consolidation), ASC 810-20 (Non-Controlling Interests)