Fighting Back, a not-for-profit organization, has a 51% economic interest in Clothing Care, another not-for-profit organization. The organizations operate independently, have no directors in common, and have no transactions with each other. For financial reporting purposes, how should Fighting Back account for its interest in Clothing Care?

Question

Quizplus · Accepted Answer

Given that Fighting Back has a significant (over 50%) economic interest in Clothing Care but operates independently without common directors or transactions, the accounting treatment could vary. The choice between consolidation and note disclosure depends on the level of control and influence Fighting Back has over Clothing Care, as well as the specific reporting framework and guidelines they follow. Without explicit control or significant inter-organization transactions, either approach could be justified, hence the option for either consolidation or note disclosure.

Fighting Back, a Not-For-Profit Organization, Has a 51% Economic Interest