“A controlling financial interest is defined as an investment of 50% or more of the voting
equity of another entity (or related group of entities)”(Richard C. Jones, 2018). This can
also be achieved when there is a good portion of the voting share since not all shares hold
the same voting weight in shareholder meetings. The advantage of controlling interest is
that it provides a group or individual the ability to be a part of the decision-making process
of the company and overturn decisions of the board. It also provides“a controlling interest
grants an investor the leverage to increase their shareholding stake in a company in the
event of amerger or acquisition”(Smith, 2022).
“Push-down accounting is the practiced of revaluing an acquired subsidiary’s assets and
liabilities to their fair values directly on the subsidiaries books at the date of
purchase”(Christensen et al., 2019). When this is done there is no need to include them on
a consolidated worksheet. In 2014, FASB reissued it’s standards, which eliminated the
percentage ownership and made this optional for companies that were acquired.
An important consideration to keep in mind when electing the push-down accounting is the
impact on the income statement and its historical cost. When a company elects to use
push-down accounting, the acquiree adjusts the assets and liabilities to reflect the purchase
price. “Any gains and losses associated with the new book value are “pushed down” from
the acquirer’s to the acquired company’s income statement and balance sheet”(Liberto,
2022). You must consider the tax and jurisdiction and the ease of evaluating the
profitability of the purchase.
References
Christensen, T. E., Cottrell, D. M., & Budd, C. (2019).Advanced Financial
Accounting(12th ed.). McGraw Hill LLC.
Liberto, D. (2022, May 11).Pushdown accounting. Investopedia. Retrieved July 7, 2022,
from https://www.investopedia.com/terms/p/push-down-
accounting.asp#:~:text=Pushdown%20accounting%20is%20a%20method,to
%20reflect%20the%20purchase%20price.
Richard C. Jones, P. D. (2018, August 29).Common control entities and consolidation of
variable interest entities. The CPA Journal. Retrieved July 7, 2022, from
https://www.cpajournal.com/2018/08/15/common-control-entities-and-consolidation-
of-variable-interest-entities/#:~:text=A%20controlling%20financial%20interest
%20is,or%20related%20group%20of%20entities).
Smith, T. (2022, June 14).What is a controlling interest?Investopedia. Retrieved July 7,
2022, from https://www.investopedia.com/terms/c/controllinginterest.asp
