Consolidating financial statement
The first requirement is economic interest, which exists when one NFP is responsible for the liabilities of the other entity or holds significant resources that must be used for the purposes of the other entity.
An entity has control if it has the ability to direct the operating and financial policies of another with a view to gaining economic benefit.
When an investor acquires less than 20% outstanding common stock of another company, it shows the investment using the fair value method (also called cost method).
When the ownership interest is in the range of 20-50%, the investor adopts the equity method.
It’s the second in a two-part series by the F1 examiner.
Consolidated financial statements were not examined at the equivalent level in the old syllabus.
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If it is determined that there is no controlling financial interest, an organization may still meet the consolidation requirements if it possesses an economic interest and control.