[zipties]

So, I just want to make sure… this question (which came from 2015 NINJA) is out of date correct? I read/understand that NCI under ASC 805-20-30-7 states that we pick up NCI at FMV of the shares that are outstanding that the acquirer doesn’t own.

30-7 Paragraph 805-20-30-1Open this link as a new document requires the acquirer to measure a noncontrolling interest in the acquiree at its fair value at the acquisition date. An acquirer sometimes will be able to measure the acquisition-date fair value of a noncontrolling interest on the basis of a quoted price in an active market for the equity shares (that is, those not held by the acquirer). In other situations, however, a quoted price in an active market for the equity shares will not be available. In those situations, the acquirer would measure the fair value of the noncontrolling interest using another valuation technique.

I just want to make sure I’m not missing something.

On January 2, 20X1, Pare Co. purchased 75% of Kidd Co.’s outstanding common stock. Selected balance sheet data on December 31, 20X1, is as follows:

PARE KIDD

Total assets $420,000 $180,000

======== ========

Liabilities $120,000 $ 60,000

Common stock 100,000 50,000

Retained earnings 200,000 70,000

---

---

$420,000 $180,000

======== ========

During 20X1, Pare and Kidd paid cash dividends of $25,000 and $5,000, respectively, to their shareholders. There were no other intercompany transactions.

The combination is accounted for as an acquisition (initiated in a fiscal year beginning after December 15, 2008). In Pare’s December 31, 20X1, consolidated balance sheet, what amount should be reported as noncontrolling (minority) interest in net assets?

A. $0

B. $30,000

C. $45,000

D. $105,000

According to FASB ASC 810-10-20, a noncontrolling interest is:

Quote

The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A noncontrolling interest is sometimes called a minority interest.

The ownership interests in the subsidiary that are held by owners other than the parent is a noncontrolling interest. The noncontrolling interest in a subsidiary is part of the equity of the consolidated group.

The noncontrolling (minority) interest is the interest of third parties in the acquired company (Kidd).

Noncontrolling interest = Noncontrolling holding x Net assets of Kidd

= (1.00 – 0.75) x ($50,000 + $70,000)

= 0.25 x $120,000

= $30,000

Net assets can be computed in either of two ways: (1) book values of stockholders’ equity or (2) book value of assets less book value of liabilities. Here, the book values of stockholders’ equity are $50,000 for common stock and $70,000 for retained earnings.

FAR - 89
REG - 80
AUD - 95!!!
BEC - 86
Licensed in Massachusetts (1/2016)

Done with one attempt each thanks to Roger + NINJA 10-Pt Combo

[Anonymous]

I'm not catching what you are suggesting, I would believe the question is correct…

Per the provided quote from the ASC – “…In other situations, however, a quoted price in an active market for the equity shares will not be available. In those situations, the acquirer would measure the fair value of the noncontrolling interest using another valuation technique…”

So, in the question the FMV of the shares is not presented (unless I missed it) and thus you would use “another valuation technique” which I would think using net assets or TSE would be sufficient? NA = 120k TSE = 120k NCI = 25% or $30,000.

[zipties]

Why I'm confused is that I thought NCI is based off FMV of the NCI shares and the valuation method is based off of one of the three FMV valuation methods (market, income or replacement cost approach) for the shares. Maybe I'm thinking too hard about this… and we're to assume that BV of the shares = FMV.

The other question I forgot to add is wouldn't NCI be decreased by dividends declared and increased by earnings of the Investment? Thus: $30k (Beginning) – $1.5k ($5k*.25) dividends declared to NCI = $28.5k since the question asks consolidation at the end of the year not the beginning and we'd be accounting for NCI under the what would be like the equity method?

FAR - 89
REG - 80
AUD - 95!!!
BEC - 86
Licensed in Massachusetts (1/2016)

Done with one attempt each thanks to Roger + NINJA 10-Pt Combo

[Author]

Replies