Describe the concept of a "controlling financial interest."
A "controlling financial interest" is typically considered to be at least
50% of the outstanding shares of a company. In some cases, it is
defined as the largest held group of voting shares because not every
share carries a vote in some shareholder meetings. Either way, to
have the controlling financial interest in a company tends to give that
person (or group) the most sway over what does happen in those
shareholder meetings and subsequently what happens within the
company. It shold be known that this does not grant any exclusive
control that cannot be taken away or redistributed as those who
wish to have a little more sway or influence can try be elected to a
board or lobby publicly for the changes they would like to see,
putting the control more definitvely into their hands (Smith et al.,
2021).
How does the acquiree elect pushdown accounting?
If an acquiree obtained control of the entity they sought to acquire,
they can elect the use of puahdown accounting in their seperate
financial statements (Dietrich, 2016). This would essentially push the
acquired assets and liabilities to the acquirer and become part of
their financial statements that are separeted from the acquired's
financial statements. It is important to consider all the nuiances that
may arise from this method and the tax implications as well to bring
those assets, liabilities and more over from the date of the
acquisition.
What do you feel is the most important consideration to decide on
before making the election?
I think that the most important consideration that needs attention
before committing to making the election is how the acquired views
their financial statements and whether or not they match the way
you do. While it may not hinder some, it is important to understand
that the way they view their statements can greatly fluctuate the
outcomes of income statements depending on if they use a historical
basis. However, if you as the acquirer are more focused on cash flow
and EBITDA (Earnings Before Interest, Taxes, Depreciation, and
Amortization), then you may find you are indifferent to the issues
that may come with pushdown accounting (Christensen et al., 2019).
References
Christensen, T. E., Cottrell, D. M., & Budd, C. J. H. (2019). Advanced
Financial Accounting (12th ed.). McGraw-Hill Education.
Dietrich, N. F. (2016, December 20). Pushdown accounting.
McClintock & Associates. Retrieved July 6, 2022,
from https://www.mcclintockcpa.com/pushdown-accounting/
Smith, T. (2021, December 5). Controlling Interest. Investopedia.
Retrieved July 6, 2022,
from https://www.investopedia.com/terms/c/controllinginterest.asp
