“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. c 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 a merger 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 its
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 acquirers 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.
"Controlling financial interest is defined as an investment of 50% or more of the
voting equity of another entity. Therefore, in accordance with ARB 51, a
company that holds 50% or more of the voting equity of an affiliate is viewed as
the controlling parent company and should include the affiliate (or affiliated
group) in its consolidated financial statements" (CPA Journal). Pushdown
accounting is a method of accounting in which your account for the purchase
price rather than the historical cost. It is important to consider whether you will
result in higher or lower costs. Because you are not looking at historical data, it
is important to review the value of assets and liabilities you are getting prior to
making 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%2
0reflect%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
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).
