Question

U.S. GAAP and IFRS can differ on valuation of noncontrolling interests on the consolidated balance sheet. Assume a parent owns 90

1) its fair value
2) its book value
3) its market value
4) its historical cost

Answer 1

U.S. GAAP and IFRS differ on the valuation of noncontrolling interests on the consolidated balance sheet. U.S. GAAP typically uses fair value, while IFRS allows for a choice between fair value and proportionate share of net assets. The difference between fair value, book value, market value, and historical cost is important in understanding the valuation of noncontrolling interests.

Step-by-step explanation:

U.S. GAAP and IFRS can differ on the valuation of noncontrolling interests on the consolidated balance sheet. When valuing noncontrolling interests, U.S. GAAP typically uses fair value, while IFRS allows for a choice between fair value and proportionate share of net assets. Fair value represents the estimated price that would be received to sell the noncontrolling interest in an orderly transaction between market participants. Book value is the value of the noncontrolling interest as recorded on the parent company's books and may be different from its fair value.

In contrast, market value is the current value of the noncontrolling interest in the open market. Historical cost is the original cost incurred to acquire the noncontrolling interest and does not represent its current value or fair value.