The Financial Accounting Standards Board, or FASB, has clarified the accounting for minority interest in a subsidiary. In Rules 141(R) and 160, FASB, the parent no longer uses a special section of the balance sheet to report minority interest. Rather, it recognizes all assets and liabilities of an acquired company at fair value in the equity section 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 percent of company xyz's equity, thereby gaining a majority stake in company xyz, you would compute the fair value of the remaining 10 percent 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 percent of company xyz for $100 million, the 10 percent fair value of the non-controlling equity interest might be $20 million plus $2 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 percent of its equity purchased by company abc and had total adjusted income of $20 million at the time of purchase, than its prorated share of the adjusted income is $2 million (20,000,000 x 10 percent = 2,000,000). The $2 million would be added to the computed fair value on the non-controlling interest of $22 million for a total value of $24 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 $24 million and the prorated share of total dividends is $1 million, than you would subtract the $1 million from the $24 million for a total ending balance of non-controlling equity interest of $23 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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