How do you account for a written put option held by non-controlling shareholders over their NCI?
An advanced Group Accounting question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
When the parent writes a put giving NCI the right to sell their shares to the group at a future price, the group has a present obligation to pay cash, so a financial liability must be recognized at the present value of the redemption amount — even though legal ownership hasn't transferred. This is one of IFRS's genuinely contentious areas with two views in practice: under the 'present-access' (anticipated-acquisition) approach, the NCI is effectively derecognized and treated as already acquired, so no NCI is presented and the liability replaces it; under the alternative, NCI continues to be recognized and the put liability is booked with a debit to equity. Subsequent remeasurement of the liability (as the strike/estimate changes) is also debated — through P&L or equity. The exam point: a put over NCI creates a financial liability for the PV of the redemption price (IAS 32), it's not just a disclosure, and the treatment of the NCI and remeasurement is a known area of divergence requiring a clear accounting policy.
WHAT INTERVIEWERS LISTEN FOR
- ✓NCI put creates a financial liability at PV of redemption (IAS 32)
- ✓Recognized despite no legal transfer of shares
- ✓Two approaches: derecognize NCI (present access) vs retain NCI + debit equity
- ✓Remeasurement (P&L vs equity) is a contested policy choice
COMMON MISTAKES
- ✗Treating the put as mere disclosure
- ✗Not recognizing the liability
- ✗Unaware it's a divergent-practice area
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