A controlling financial interest is an investment with 50% or more of
the equity within an entity (Jones, 2018). However, an individual may
become a controlling interest without obtaining 50% ownership if
they own a significant portion of the company's voting shares. This
means the shareholder has significant influence over the company's
actions. This is advantageous because a shareholder can make their
voice heard during important decision-making processes. Having a
controlling financial interest also increases leverage in case of a
merger or acquisition (Smith, 2021).
Pushdown accounting reflects a company's purchase of another by
"writing up" or "writing down" the purchased company's assets and
liabilities. It is based on the purchase price, rather than the historical
cost of the company. The amount paid to purchase said company
becomes its new book value on its financial statements. Gains or
losses that come from this value are "pushed down" to the new
company's income statement and balance sheet. Pushdown
accounting can be thought of as using "borrowed money" to create
the new company, as the assets and debts from the purchased
company are part of the new subsidiary (Liberto, 2021).
An acquiree may decide to make the election for pushdown
accounting, but there are important considerations before doing so. A
benefit of pushdown accounting comes from the effect of reporting.
An acquiree may opt for this method of accounting if they expect
losses from the purchase or the company to endure hardship, so they
can report these losses to the parent company by altering its accounts
(Push-Down Accounting, n.d.). The downside of this type of reporting
is that the parent company may lose money, depending on how the
newly purchased company was acquired (Newth, 2022). The parent
company must consider the monetary benefits to this method prior to
election.
Reference List:
Jones, R. C., PhD. (2018, August 29).
Common Control Entities and
Consolidation of Variable Interest Entities
. The CPA Journal.
Retrieved July 5, 2022, from
https://www.cpajournal.com/2018/08/15/common-control-entities-
and-consolidation-of-variable-interest-
entities/#:%7E:text=A%20controlling%20financial%20interest%20is,
or%20related%20group%20of%20entities).
Liberto, D. (2021, March 29).
Pushdown Accounting
. Investopedia.
Retrieved July 5, 2022, from
https://www.investopedia.com/terms/p/push-down-
accounting.asp#:%7E:text=In%20pushdown%20accounting%2C%20t
he%20target,value%20on%20its%20financial%20statements.
Newth, A. (2022, June 25).
What Is Push-Down Accounting?
Smart
Capital Mind. Retrieved July 5, 2022, from
https://www.smartcapitalmind.com/what-is-push-down-
accounting.htm#:%7E:text=Using%20push%2Ddown%20accounting
%20has,more%20money%20during%20income%20reporting.
Push-Down Accounting
. (n.d.). International Financial Reporting Tool.
https://www.readyratios.com/reference/accounting/push_down_acc
ounting.html
Smith, T. (2021, December 6).
What Is a Controlling Interest?
Investopedia. Retrieved July 5, 2022, from
https://www.investopedia.com/terms/c/controllinginterest.asp
