ASC 810 Noncontrolling Interest and Deconsolidation: Worked Journal Entries and Audit Tests

A client sells part of a subsidiary. Whether the sale produces a gain depends on one fact: did the client keep control? If it did, the sale goes through equity and earnings do not move. If it did not, the client records a gain or loss and remeasures what it kept. Mixing the two models is a frequent error in consolidated files.

This guide covers noncontrolling interest (NCI) basics, the entries for ownership changes that keep control, the entries for loss of control, and what the auditor tests. For consolidation basics and intercompany eliminations, see /us/blog/asc-810-consolidation-private-companies.

What is a noncontrolling interest?

An NCI is the equity, meaning net assets, in a subsidiary that is not attributable, directly or indirectly, to the parent. It arises in two ways: the parent acquires a controlling interest and the sellers keep part of the equity, or the parent sells part of a subsidiary to a third party and keeps control. At the acquisition date, the NCI is recorded in equity at fair value in a business combination, see /us/blog/asc-805-purchase-price-allocation-worked-journal-entries.

What happens when the parent keeps control?

Changes in the parent's ownership of a subsidiary that is a business, where the parent keeps control, are equity transactions. No gain or loss is recognized in earnings. Buying and selling subsidiary shares, and the subsidiary issuing or reacquiring its own shares, all fall here.

The mechanics:

• The NCI carrying amount is adjusted to reflect its new ownership percentage. After the acquisition date, it is measured at its proportionate share of the subsidiary's carrying net equity, not fair value.
• The gap between the NCI adjustment and the fair value of the consideration paid or received goes to equity attributable to the parent, usually additional paid-in capital.
• The subsidiary's identifiable net assets are not remeasured.
• Accumulated other comprehensive income (AOCI) is reallocated proportionately between the controlling interest and the NCI.

Worked entries: control retained

Illustrations with round numbers.

The parent owns 100 percent of a subsidiary with carrying net assets of $900,000. It sells 20 percent for $250,000 and keeps control. The NCI is 20 percent of $900,000, or $180,000. The remaining $70,000 goes to paid-in capital:

The parent owns 80 percent. The NCI carrying amount is $200,000. The parent buys half of the NCI, a 10 percent stake, for $130,000. The NCI falls by $100,000, and the $30,000 excess over carrying amount reduces paid-in capital:

No goodwill is recognized and no gain or loss reaches earnings in either case.

What happens when the parent loses control?

Loss of control is an economic event similar to gaining control, so it is a remeasurement event. Triggers include a sale of all or part of the interest that removes control, expiry of a contract that gave control, share issuances that dilute control, and control passing to a government, court or regulator.

Scope matters. The gain or loss model below applies to a subsidiary or group of assets that is a business. KPMG notes that a subsidiary that is not a business and holds only nonfinancial assets, or in-substance nonfinancial assets, is accounted for under ASC 610-20, and that some transactions, such as oil and gas mineral rights and transfers in a contract with a customer, sit outside ASC 810 deconsolidation altogether.

On the date control is lost, the parent:

1. Derecognizes the subsidiary's assets, including allocated goodwill, and liabilities at carrying amounts.
2. Derecognizes the carrying amount of any NCI, including its related AOCI.
3. Recognizes the fair value of the proceeds.
4. Recognizes any retained investment at fair value.
5. Reclassifies related other comprehensive income amounts to income.
6. Recognizes the difference as a gain or loss attributable to the parent.

The gain or loss is the consideration fair value, plus the retained investment fair value, plus the NCI carrying amount including AOCI, less the carrying amount of the former subsidiary's net assets. KPMG sets out the same formula. The NCI is derecognized at its carrying amount, not revalued to fair value.

The parent also discloses the total gain or loss and the portion that relates to remeasuring the retained investment. That needs a second calculation, below.

Worked entry: control lost

An illustration. The parent owns 80 percent of a subsidiary with carrying net assets of $500,000 and no goodwill. The NCI carrying amount is $100,000, which is 20 percent of $500,000. The parent sells half of the subsidiary, a 50 percent interest, for $300,000 and keeps 30 percent. It no longer controls the entity. The fair value of the retained 30 percent is $180,000.

The gain is $300,000 plus $180,000 plus $100,000, less $500,000, or $80,000:

For the disclosure, the gain on the retained investment is its fair value of $180,000 less 30 percent of the net assets, $150,000, or $30,000.

Two points move the numbers in a real file. If the subsidiary carries goodwill, an allocation of it leaves with the net assets. If cumulative translation adjustments sit in AOCI for a foreign entity, the release into income follows ASC 830. See /us/standards/asc-830-foreign-currency-matters.

Audit angle

1. Establish control before and after. Agree the facts to the purchase or sale agreement, the cap table and the governance documents. For the test of entities that are not majority owned, see /us/blog/asc-810-vie-primary-beneficiary-analysis-audit-file.
2. Test the model chosen. Control retained means equity. Control lost means gain or loss. Check that the entry matches.
3. Look for linked transactions. Arrangements entered into together or in contemplation of each other, or where one depends on another, can form a single transaction. The transaction that causes the loss of control, with any linked arrangements, goes to earnings.
4. Test the retained interest valuation. The fair value feeds the gain, so see the valuation procedures in /us/blog/asc-820-fair-value-measurement.
5. Check impairment before the sale. An expected sale or loss of control can be an indicator for goodwill and long-lived asset impairment tests. Any impairment is recognized in earnings.
6. Consider discontinued operations. Assess whether the subsidiary meets the criteria for presentation as discontinued operations.
7. Recompute AOCI. Reallocation between parent and NCI, and any release on deconsolidation.
8. Check redeemable NCI. KPMG notes that adjustments made to redeemable NCI under the SEC staff guidance do not affect the deconsolidation gain or loss and are reversed through the parent's equity.

Common misstatements: recording a gain on a partial sale where control was kept, leaving the retained interest at carrying value instead of fair value, skipping the AOCI release, and revaluing the third-party NCI to fair value.

CORAA prepares ready-to-review audit files for US CPA firms from QuickBooks books; you review and sign. See /us.

Sources

• KPMG, Handbook: Consolidation (ownership changes, deconsolidation formula, scope, linked transactions): https://kpmg.com/us/en/frv/reference-library/2026/handbook-consolidation.html
• PwC Viewpoint, Business combinations guide, 5.4 Changes in ownership interest without loss of control: https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/business_combination/business_combination__28_US/chapter_5_partial_ac_US/54_change-ownrshp.html
• PwC Viewpoint, Business combinations guide, 5.5 Changes in interest resulting in a loss of control: https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/business_combination/business_combination__28_US/chapter_5_partial_ac_US/5_5-Changes-in-interest-resulting-in-a-loss-of-control_US.html

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error