CVM Resolution No. 124 of June 3, 2022

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL - CVM Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 SCN Q.02 – Bl. A – Ed. Corporate Financial Center, S.404/4th Floor, Brasília/DF – ZIP: 70712-900 – Brazil -Tel.: (61) 3327-2030/2031 www.gov.br/cvm

CVM RESOLUTION NO. 124, OF JUNE 3, 2022
Approves the Consolidation of Technical Interpretation ICPC 09 (R2) of the Accounting Pronouncements Committee - CPC, which deals with individual financial statements, separate financial statements, consolidated financial statements, and the application of the equity method.

THE PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION OF BRAZIL - CVM makes it known that the Board, in a meeting held on May 4, 2022, based on §§ 3 and 5 of art. 177 of Law No. 6.404, of December 15, 1976, combined with items II and IV of § 1 of art. 22 of Law No. 6.385, of December 7, 1976, as well as arts. 5 and 14 of Decree No. 10.139, of November 28, 2019,

APPROVED the following Resolution:

Art. 1. The Technical Interpretation ICPC 09 (R2), which deals with individual financial statements, separate financial statements, consolidated financial statements, and the application of the equity method, issued by the Accounting Pronouncements Committee - CPC, as consolidated in Annex “A” to this Resolution, is made mandatory for publicly-held companies.

Art. 2. CVM Deliberation No. 729, of November 27, 2014, is revoked, from the effective date of this Resolution.

Art. 3. This Resolution enters into force on July 1, 2022.

Electronically signed by
Marcelo Barbosa
President

CVM RESOLUTION NO. 124, OF JUNE 3, 2022
ANNEX “A”
ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL INTERPRETATION ICPC 09 (R2)
INDIVIDUAL FINANCIAL STATEMENTS, SEPARATE FINANCIAL STATEMENTS, CONSOLIDATED FINANCIAL STATEMENTS AND APPLICATION OF THE EQUITY METHOD

Table of Contents Item
REFERENCES
INITIAL CONSIDERATIONS IN1 – IN4
INTRODUCTION 1
FINANCIAL STATEMENTS 2 – 3
INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS 4 – 8 SEPARATE FINANCIAL STATEMENTS 9 – 17 INVESTMENT IN SUBSIDIARY AND GOODWILL PAID FOR EXPECTATION OF FUTURE PROFITABILITY (GOODWILL) IN THE ACQUISITION OF A SUBSIDIARY IN INITIAL RECOGNITION, IN THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS OF THE PARENT 18 – 34 GOODWILL PAID FOR EXPECTATION OF FUTURE PROFITABILITY IN THE ACQUISITION OF AN INTEREST IN AN AFFILIATE OR IN A JOINTLY CONTROLLED ENTERPRISE ASSESSED BY THE EQUITY METHOD 35 – 39 EXPECTED FUTURE PROFITS WITH DEFINED TERM; CONCESSION RIGHTS, EXPLORATION RIGHTS AND SIMILAR 40 – 47 UNREALIZED PROFITS IN TRANSACTIONS WITH AN AFFILIATE OR JOINTLY CONTROLLED ENTERPRISE 48 – 54 UNREALIZED PROFITS IN TRANSACTIONS BETWEEN PARENT AND SUBSIDIARY AND BETWEEN SUBSIDIARIES 55 – 59 EQUITY METHOD ON OTHER COMPREHENSIVE INCOME 60 – 61 OTHER ASPECTS OF THE EQUITY METHOD 62 – 63 CHANGES IN PERCENTAGE OF INTEREST IN SUBSIDIARIES 64 – 70

CVM RESOLUTION NO. 124, OF JUNE 3, 2022
LOSS OF CONTROL AND CHANGES IN INTEREST IN SUBSIDIARY 70A – 70D ACQUISITION METHOD IN BUSINESS COMBINATIONS OPERATIONS 70E – 75 PROVISION ON POSSIBLE DIFFERENCES BETWEEN INDIVIDUAL AND CONSOLIDATED STATEMENTS TRANSITORY PROVISIONS 77 – 78

References
CPC 04 – Intangible Assets;
CPC 15 – Business Combinations;
CPC 18 – Investment in Affiliate, in Subsidiary and in Jointly Controlled Enterprise; CPC 19 – Joint Arrangements; CPC 32 – Income Taxes; CPC 35 – Separate Financial Statements; CPC 36 – Consolidated Financial Statements; CPC 38 – Financial Instruments: Recognition and Measurement.

CVM RESOLUTION NO. 124, OF JUNE 3, 2022

Initial Considerations
IN1. After the issuance of Technical Pronouncement CPC 15 – Business Combinations, it became necessary to issue certain guidelines and interpretations regarding it, mainly concerning the individual financial statements of the acquiring entity, since Technical Pronouncement CPC 15 is basically aimed at the preparation and presentation of consolidated financial statements.

IN2. With the issuance of Technical Pronouncements CPC 04 – Intangible Assets, CPC 18 – Investment in Affiliate, in Subsidiary and in Jointly Controlled Enterprise, CPC 19 – Joint Arrangements, CPC 35 – Separate Financial Statements and CPC 36 – Consolidated Financial Statements, various points also came to require guidelines and interpretations.

IN3. This Interpretation aims to clarify and guide issues inherent to the pronouncements cited in IN1 and IN2, as well as defines specific accounting procedures for the individual statements of parent companies, mainly regarding the (the):
(a) use of individual, consolidated and separate statements; (b) differentiation between the measurement methods of corporate investments in the individual financial statement, the separate financial statement and the consolidated financial statement; (c) initial application of the equity method in the individual and consolidated statements; (d) some special topics related to the application of the equity method after initial recognition; (e) treatment of goodwill for expectation of future profitability in certain circumstances, including mergers and consolidations; (f) some capital transactions between partners; (g) points regarding the effectiveness of Technical Pronouncement CPC 15; and (h) others.

IN4. The revision of ICPC 09, concluded in 2014 (R2), introduced two specific sections to deal with:
(a) loss of control and changes in interest in subsidiary (items 70A to 70D) to highlight the accounting treatment when losing control of a former subsidiary in situations where the remaining investment is still subject to the equity method. The main highlight is the provision of Technical Pronouncement CPC 36, that one must first derecognize the value of the investment in the former subsidiary in the individual balance sheet and, in the case of the consolidated balance sheet, derecognize the assets and liabilities of the former subsidiary; and subsequently recognize the remaining investment in the former subsidiary, if any, at its fair value on the date control was lost, both in the individual statements and in the consolidated statements. It is important to highlight that the fair value determined in accordance with Technical Pronouncement CPC 38 becomes the new cost of the investment so as to then adopt the equity method provided for in Technical Pronouncement CPC 18, if applicable. Item 70D deals with changes in interest in subsidiary;

CVM RESOLUTION NO. 124, OF JUNE 3, 2022
(b) acquisition method in business combinations operations (items 70E to 70L) to deal with clarifications on the acquisition accounting method in business combinations operations, including illustrative examples.

Introduction

An investment or a participation of an entity in equity instruments (usually shares or partnership units) of another entity may qualify as a:
(a) investment in a subsidiary (subject to Technical Pronouncements CPC 36, CPC 18 and CPC 15), assessed by the equity method in the individual balance sheet in accordance with the Pronouncements, Interpretations and Guidelines of the Accounting Pronouncements Committee (CPC) (but not by IASB standards, since standards issued by the IASB do not deal with the individual financial statements of the parent) and subject to balance sheet consolidation, both as part of what is required in the Pronouncements, Interpretations and Guidelines of the CPC, as well as international accounting standards (IASB – International Accounting Standards Board); or (b) investment in an affiliate and in a jointly controlled enterprise (subject to Technical Pronouncement CPC 18), assessed by the equity method, both in the individual balance sheet and in the consolidated balance sheet of the parent when it has, directly or indirectly, significant influence or joint control over another company, both as part of the Pronouncements, Interpretations and Guidelines of the CPC, as well as international accounting standards; (c) investment in a subsidiary, in a jointly controlled enterprise or in an affiliate, held by investment entities, classified in items 27 and 28 of Technical Pronouncement CPC 36, assessed at fair value through profit or loss, like a financial asset; (d) investment treated as a financial asset (subject to Technical Pronouncement CPC 38 – Financial Instruments: Recognition and Measurement), assessed at fair value (or at cost when a reliable fair value measurement is not possible), both in the individual balance sheet of the investor and in the consolidated one and never by equity method, both as part of Brazilian accounting practices and international accounting standards; or (e) investment in an affiliate, in a subsidiary or in a jointly controlled enterprise presented in a separate statement (subject to Technical Pronouncement CPC 35), assessed at fair value or at cost, never by equity method, both as part of Brazilian accounting practices and international accounting standards.

Financial Statements
2. The statements that constitute the complete set of financial statements required by Technical Pronouncement CPC 26 – Presentation of Financial Statements comprise:
(a) the balance sheet;
(b) the income statement;
(c) the statement of comprehensive income;
(d) the statement of changes in equity;

CVM RESOLUTION NO. 124, OF JUNE 3, 2022
(e) the cash flow statement;
(f) the statement of added value, if legally required or by some regulatory body; and (g) the notes to the financial statements.

These statements may be presented, according to circumstances, in the form of:
(a) individual financial statements;
(b) consolidated financial statements; and
(c) separate financial statements.

Individual and Consolidated Financial Statements
4. From a conceptual point of view, individual statements should only be publicly disclosed in the case of entities that do not have investments in subsidiaries. In the case of the existence of these investments, entities should disclose only the consolidated financial statements, as established in international accounting standards issued by the IASB.

However, Brazilian corporate law and some regulatory bodies determine the public disclosure of individual financial statements of entities that contain investments in subsidiaries, even when these entities disclose their consolidated statements; moreover, corporate law requires that individual financial statements, in Brazil, be the basis for several calculations with corporate effects (determination of mandatory minimum and total dividends, book value of the share, etc.). This Interpretation, while the legal requirement for disclosure of the parent's individual statements remains in force, requires specific accounting procedures for the individual statements of parent companies.
As a consequence, the CPC clarifies, through this Interpretation, that, while this legislation is maintained, the presentation of individual statements of all entities is required, even when consolidated statements are presented. It requires, however, that the individual statements of entities that have investments in subsidiaries be mandatorily disclosed together with the consolidated statements whenever legally required or by the provisions of Technical Pronouncement CPC 36.
The obligation to “disclose, together with its financial statements, consolidated statements...”, as prescribed by art. 249 of the Corporations Law, does not necessarily imply disclosure in side-by-side columns, it can be one financial statement following the other. Having met the minimum legally required in terms of disclosure, the entity may disclose only its consolidated statements as a separate set, which is desirable or even necessary if there are accounting practices in the consolidated statements different from those used in the individual statements by authorization of the regulatory body or because they contain effects of practices prior to the introduction of Laws Nos. 11.638/07 and 11.941/09.
The provisions of items 6 and 7 must be applied to situations where regulatory entities allow or determine that consolidated statements are prepared entirely in accordance with international accounting standards. If these statements are presented in accordance with IASB standards applied in conformity with Technical Pronouncement CPC 37 – Initial Adoption of International Accounting Standards, the presentation of consolidated statements prepared according to the Pronouncements, Interpretations and Guidelines of the CPC is waived.

Separate Financial Statements
9. According to Technical Pronouncements CPC 18, CPC 35 and CPC 36, any entity that holds an investment in an affiliate, in a subsidiary or in a jointly controlled enterprise, in addition to its individual statements, or individual and consolidated statements, may also prepare and present separate financial statements. There is no requirement from this CPC that makes the publication of separate statements mandatory. This option was introduced by the CPC in alignment with the provision existing in international accounting standards issued by the IASB. It is worth highlighting that separate statements are not to be confused with individual statements.

From a conceptual point of view, separate statements should only be presented in circumstances where corporate investments measured by the equity method or presented in the form of consolidated statements do not fully represent the reason and purpose of these investments (see items 12 and 13). Cases where there is justification for the presentation of separate statements are rare. According to international standards, there are only three reasons that would lead to the preparation and disclosure of separate statements: (a) by option, i.e., the entity chooses to present additional separate statements; (b) by local legal requirement, i.e., when local law requires that investments in affiliates, in subsidiaries and in jointly controlled enterprises be measured at cost or fair value; and (c) by being exempted from applying the equity method or consolidation, in which case the entity must measure investments in affiliates, in subsidiaries or in jointly controlled enterprises at cost or fair value and then publish the separate statements. In the Brazilian case, our corporate law does not require such investments to be valued at cost or fair value, nor does it exempt the application of the equity method in the individual balance sheet when it comes to investments in affiliates, in subsidiaries and in jointly controlled enterprises.
In this sense, it is worth remembering, first of all, that the equity method corresponds to a simplified form of consolidation; through it, the investor consolidates in its assets not the value of each asset and each liability of the invested entity, but only its net assets (equity) constituting the book value of the investment and determined by the effective participation of the investor in the equity of the investee; and in the investor's results, not each revenue and each expense of the investee is consolidated, but only the part of the net result belonging to the investor in a single line. The investor's share in each comprehensive result recorded by the investee is also recognized in the investor's investment in a consolidated manner (and not in each of its assets and liabilities). Thus, the equity method and the consolidation of financial statements are different views of the consolidation process of two or more entities, but with practically equal effects on the final value of the investor's equity and net result. Therefore, they are

CVM RESOLUTION NO. 124, OF JUNE 3, 2022 based on the same consolidation objective, but showing their effects in a simplified manner in one case, and in an integral manner in the other.

There are circumstances, however, in which these consolidations - simplified (equity method) or integral - do not complete the view that the investor has regarding its investments in other entities. For example, the investor may hold interests in several entities in which it exercises significant influence, but does not control them (affiliates), and in other entities in which it exercises control or joint control, but does not have in these investments a complement of its own activities, or does not have in each investment a complement of the activities of its other investments. The entity holds these investments as business opportunities, which may be in different sectors even due to diversification policy, but which are managed by the investor individually and followed by their individual evolution in value as a business opportunity. But it does not manage them as an integrated value creation process.
In the case of investments made and/or held with the objectives described in item 12 or other similar objectives, which provide the investor with the same form of vision when managing its investments, the investor may conclude that it is relevant to inform investors, creditors and the general public in another way than by the equity method and/or by the consolidation of financial statements. The investor may consider it useful to report such investments evaluated at their respective fair values and report as results the changes in these fair values. Or it may even conclude that these investments are better presented if evaluated at cost.
Separate statements are, therefore, statements where the balance sheet contains, preferably, corporate investments in affiliates, in subsidiaries and in jointly controlled enterprises evaluated at their fair value, and where the result is measured by the changes in the fair values of these investments, and not by the equity method; the equity method, therefore, is incompatible with the figure of the separate statement and cannot be used in it. However, it is worth highlighting that, as provided in Technical Pronouncement CPC 18, when, directly or indirectly, the investing entity is a venture capital organization or, still, a fund (mutual or investment), trust unit or similar (including insurance funds linked to investments), investments in affiliates and in jointly controlled enterprises may be assessed as financial assets, provided they are designated to fair value with effect on profit or loss in accordance with Technical Pronouncement CPC 38. In this way, the application of the equity method will not be required and already in its individual statements investments in affiliates and in jointly controlled enterprises will be assessed at fair value, making the preparation of separate statements unnecessary. This prerogative is also available for investments in subsidiaries, held by investment entities (in rule venture capital organizations such as private equity funds or venture capital funds), thus characterized by Technical Pronouncement CPC 36. Already in the individual statements, investments in subsidiaries held by investment entities will be measured at fair value through profit or loss, making the preparation of separate statements unnecessary. It is worth commenting that Technical Pronouncement CPC 38 does not allow equity instruments, which do not have market price quotation or whose fair value cannot be measured with

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL (CVM) Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – CEP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brazil - Tel.: (11) 2146-2000 SCN Q.02 – Bl. A – Ed. Corporate Financial Center, S.404/4th Floor, Brasília/DF – CEP: 70712-900 – Brazil -Tel.: (61) 3327-2030/2031 www.gov.br/cvm

CVM RESOLUTION NO. 124, OF JUNE 3, 2022

reliability, shall be classified in the category of designated at fair value with effect on the result.

14A. Similarly, as provided in item 19 of Technical Pronouncement CPC 18, when the entity holds an investment in an affiliate, in a subsidiary, or in a jointly controlled entity, whose participation is held indirectly through a venture capital organization (or, still, mutual fund or investment fund, trust unit or similar, including insurance funds linked to investments), such entity may adopt measurement at fair value through the result for this portion of the participation in the investment, in consonance with Technical Pronouncement CPC 38, regardless of whether the venture capital organization exercises significant influence or joint control over this portion of the participation. If the entity makes this accounting choice, it must adopt the equity method, already in the individual statements, for the remaining portion of the participation it holds in the investment in an affiliate or in a jointly controlled entity that is not held indirectly through a venture capital organization. However, in the separate statements, the total investment in an affiliate or in a jointly controlled entity held by the entity must be evaluated at fair value.

Situations may occur, however, where it is not possible to obtain the fair value of the investments, or it is not reliably obtainable. In this situation, investments in subsidiaries, in affiliates, and in jointly controlled entities may be measured at cost, in the separate statements additionally disclosed (and in the individual ones, for the entities referred to in items 14 and 14A). This evaluation, in certain circumstances, may be preferable to the equity method, since the latter is based on the accounting values of the investees and the economic value of the investments may not bear relation to these accounting values; thus, it may be, in certain situations, preferable to measure the investments at cost and subject them to the impairment test (Technical Pronouncement CPC 01 – Reduction to Recoverable Value of Assets).
When evaluating the investments in the separate statements by the cost method, the investor must recognize revenue or expense only upon the declaration or receipt of dividends (or other forms of distribution of the investee's result) or upon the alienation or other form of write-off of such investments.
The presentation of the separate statements, however, does not exempt the entity from the obligation to present its individual and consolidated statements, or from the application, in these statements, of the equity method, when determined by the Technical Pronouncements issued by this Committee or by the current legislation. Thus, in this case, the separate statements are considered as additional statements.

Investment in subsidiary and goodwill paid for expectation of future profitability (goodwill) in the acquisition of a subsidiary in the initial recognition, in the individual and consolidated accounting statements of the parent company

In the preparation of the individual accounting statements, while required by Brazilian legislation, the acquirer must apply the requirements of this Interpretation regarding the identification of the fair value of the net equity of the acquired entity for the purposes of initial registration in the investment account, the application of the equity method, and the determination of goodwill or gain from a bargain purchase in the acquisition of a subsidiary.
First, the assets and liabilities of the entity whose equity instruments (normally shares or capital shares) were acquired must be adjusted, even off-balance sheet, with respect to all relevant accounting practices used by the acquirer. Only those adjustments resulting from a change from an accepted accounting practice to another accepted accounting practice should be considered in this category of off-balance sheet adjustment; therefore, changes in estimates and corrections of accounting errors must be adjusted in the accounting statements of the acquired entity themselves. Pay attention to some rare hypotheses where the CPC Pronouncements, Interpretations, and Guidelines admit diversity of criteria.
Next, for the purposes of determining goodwill or gain from a bargain purchase, all assets and liabilities of the investee must be recognized and measured in accordance with Technical Pronouncement CPC 15, whose general rule of measurement is fair value (with some exceptions to this general rule, provided for in items 22 to 31 of the cited Pronouncement). This procedure may cause assets and/or liabilities that were not recognized in the accounting statements of the entity whose control was obtained to be recognized (off-balance sheet in the determination of the adjusted net equity of the subsidiary for the purposes of applying the equity method and/or recognized accounting-wise for the purposes of consolidating the accounting statements). This is the case, for example, of intangible assets formed by the investee that could not be recognized accounting-wise because they did not meet the conditions provided for such in Technical Pronouncement CPC 04 – Intangible Assets, or still of contingent liabilities not subject to accounting recognition in the investee's statements by virtue of Technical Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets, but that may be recognized in the business combination, by meeting the recognition conditions provided in Technical Pronouncement CPC 15 (as defined in item 23 of CPC 15, for the recognition of a contingent liability it is sufficient that two conditions are met: (i) being a present obligation arising from past events and (ii) having its fair value measured reliably). This is because, among the general recognition rules provided in the aforementioned Pronouncement, is the requirement of conformity to the concepts of asset and liability of the Basic Conceptual Pronouncement – Conceptual Framework for the Preparation and Disclosure of Financial Reports, as well as the requirement that the asset be identifiable in the terms of Technical Pronouncement CPC 15. Therefore, the recognition and measurement of the net assets of the entity whose control was obtained (in the business combination) must follow the determinations of Technical Pronouncement CPC 15. This procedure may then cause:

(a) the inclusion of assets existing in the investee, but not recognized in the accounting statements of this investee (as is the case of certain intangible assets not accounted for in the investee because, for example, generated by it without condition for activation, but that can now be recognized and objectively evaluated individually), provided that the recognition and measurement conditions established in Technical Pronouncement CPC 15 are met; and

(b) the inclusion of contingent liabilities also not recognized in the investee (such as certain fiscal, civil, etc. contingencies), but that have been the object of valuation by the investor to assume them in the acquisition, that is, have influenced the value paid in the acquisition of these equity instruments; consequently, any contingent liability not subject to accounting recognition in the investee's statements by virtue of Technical Pronouncement CPC 25, but that has caused a reduction in the value paid or payable by the acquirer, will be recognized off-balance sheet for the purposes of determining the investee's net equity when applying the equity method and will be recognized for the purposes of consolidating accounting statements. After all, in this situation this contingent liability will have caused an effect on the acquirer's cash because it has reduced the value of the acquisition.

The amount corresponding to the difference between the fair value and the accounting value of the net equity whose control was obtained must be considered as an off-balance sheet adjustment to the net equity of the acquired entity for the purposes of computing the equity method (in the individual statements of the parent company), even if not reflected in the individual accounting statements of the entity whose control was obtained, and the individual differences between the fair value and the accounting value of each asset and liability of the entity, whose control was obtained, must also compose the balances of these assets and liabilities of the acquired entity, for the purposes of consolidating the accounting statements.
(Eliminated).
At the date of obtaining control, the amount of the investment resulting from the acquisition of subsidiaries must be recorded in the individual accounting statements of the acquirer in a segregated manner, for control and disclosure purposes, between the value of the investment proportional to the percentage of participation on the adjusted net equity according to item 20 and the goodwill, in the investment group of the non-current asset as follows:

(a) the value represented by the application of the percentage of participation attributable to the parent company (participation acquired plus the pre-existing participation at the date of the combination) applied on the net equity of the acquired entity adjusted by the accounting practices of the investor and with assets and liabilities at their fair values (including assets previously unrecognized and contingent liabilities that have been recognized according to item 20). Considering that, as a rule, in the original accounting records of the acquired entity the assets and liabilities remain registered by the original accounting values, without any adjustment by the fair values determined in the business combination, the acquirer entity must identify all items that result in differences between the accounting values and the fair values of the assets and liabilities of the acquired entity for the purposes of controlling their realization by amortization, depreciation, depletion, sale, liquidation, change in accounting value, write-off, impairment or any other mutation in the accounting records of these assets and liabilities. When these differences between accounting value and fair value of assets and liabilities of the acquired entity are realized, the acquirer entity must realize its share when recognizing the result of the equity method. After all, the result of the acquired entity will have been produced based on the historical values recorded in it, but for the acquirer these assets and liabilities will have been acquired at fair values at the date of obtaining control. At the date of acquisition, the investment in the subsidiary for the purposes of its individual statements is measured by the parent company's share in the fair value of the net assets of the acquired entity, consequently, it must be subdivided for control purposes, in the acquirer entity, into:

(i) portion related to the equity method on the accounting net equity of the acquired entity; and

(ii) portion related to the difference between the value obtained in item (i) above and the acquirer's share in the fair value of the net assets of the acquired entity, measured in accordance with Technical Pronouncement CPC 15, at the date of obtaining control. This portion represents the gross appreciation derived from the difference between the fair value and the accounting value of the net assets of the acquired entity. Tax effects must be considered and, when necessary, registered, according to Technical Pronouncement CPC 32 – Taxes on Profit;

(b) the goodwill of the investment in the subsidiary, represented by the positive difference between (i) the sum of the amount given in exchange for control (value paid or payable relative to the purchase of participation that conferred control) with the fair value of any pre-existing participation, if any; and (ii) the acquirer's share in the fair value of the assets and liabilities of the acquired entity already net of the deferred tax liability (or increased by the deferred tax asset). Note that this goodwill should only be classified in the intangibles subgroup in the consolidated balance sheet, never in the individual balance sheet, where it must remain integrating the accounting balance of the investment, which is presented in the investments subgroup; after all, the goodwill calculated in this way is pertinent to the acquired entity, paid by the acquirer (in cases where there was a purchase, for example) and for this, individually, represents part of the cost of its investment, even if subject to impairment.

In the initial recognition of the investment in the individual statements of the parent company, the sum of the values presented in (a)(i), (a)(ii) and (b) in item 23 must correspond to the sum of the total fair value of payments made, assets transferred, instruments issued as part of the payment and obligations assumed for future payment (contingent or not) as a consequence of the business combination operation and the fair value of the pre-existing participation. However, it is worth remembering that, as provided in Technical Pronouncement CPC 15, the non-controlling interest may, at the acquirer's option, be measured at fair value, in which case the goodwill of the business combination to be presented in the consolidated statements will correspond to the sum of the goodwill attributable to the parent company (determined according to item 23) and the goodwill attributable to the non-controlling interests, which will correspond, at the date of acquisition, to the positive difference between the fair value of the non-controlling interests' participation (based on the price quotation of the equity instruments in their possession, for example) and the share that falls to the non-controlling interests in the fair value of the net assets of the acquired entity (already adjusted for the deferred tax liability or asset).
The goodwill determined in the manner of item 23(b), having an indefinite useful life, will not be amortized (except as provided in items 40 to 43) and must be subject to a recoverability test (impairment), according to Technical Pronouncement CPC 01.
In the consolidated balance sheet, the goodwill of the combination must be registered in the intangible asset subgroup because it refers to the expectation of future profitability of the acquired subsidiary, whose assets and liabilities are consolidated in those of the parent company. In the individual balance sheet of the parent company, however, this portion of goodwill attributable to the parent company must integrate the accounting balance of the investment and, therefore, remain in the investments subgroup of the non-current asset group, because, for the investor, it is part of its investment in the acquisition of the subsidiary, not being an intangible asset (as said above, this portion of the expectation of future profitability – the genuine intangible – belongs to the subsidiary). The impairment recognition process, on the other hand, must be applied both to the goodwill account in the consolidated balance sheet (see Technical Pronouncement CPC 01 – Reduction to Recoverable Value of Assets), and to the goodwill sub-account also in the individual balance sheet.
The investment account must be detailed in explanatory notes regarding its three components (if they exist): parent company's equity value in the accounting net equity of the acquired subsidiary (item 23(a)(i)), value of the appreciation of the acquired net assets attributed to the parent company (item 23(a)(ii)) and goodwill attributed to the parent company (item 23(b)).
It is emphasized that the value paid that refers specifically to concession rights, exploration rights and similar, as explicit in item 41, does not constitute goodwill paid for expectation of future profitability. In these situations, if the concession contract is identifiable (by legal, contractual criteria) and can be measured at fair value in objective and reliable conditions, the corresponding intangible asset will be classified separately in the intangible asset subgroup in the consolidated statements. The parent company's share in this intangible will compose the accounting balance of the investment in the individual statements. As part of the excess of the business value over the fair value of the net assets (which is what represents goodwill) contains benefits from the synergy of the concession rights with the acquirer's own cash flows, but such rights cannot be recognized separately from goodwill because they are not identifiable in the terms of Technical Pronouncement CPC 15, then, this right will be part of the goodwill of the business combination. In exceptional situations (case of concessions in Brazil), the expectation of future profitability may present a defined useful life (for example, the term of the concession), being, consequently, characterized as “intangibles with defined useful life”, in the terms of Technical Pronouncement CPC 04, being subject to periodic accounting amortization. These future profits (expectation) should not be confused with goodwill paid for expectation of future profitability, due to (i) being identifiable; (ii) having a defined useful life and (iii) being subject to accounting amortization. Goodwill, although composed of expectation of future profitability, does not have a defined useful life, which is why it is not subject to periodic accounting amortization. See items 40 to 43.
In the event of determination of gain from a bargain purchase, the accounting registration must be made as provided in Technical Pronouncement CPC 15, which will result in the recognition of gain in the acquirer entity.
There are situations where control may not be obtained by payment or commitment of future payment and, rather, by other means without a “purchase” of shares (and nothing has been

COMMISSION OF SECURITIES AND EXCHANGE
Sete de Setembro Street, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Cincinato Braga Street, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 SCN Q.02 – Bl. A – Corporate Financial Center Building, S.404/4th Floor, Brasília/DF – ZIP: 70712-900 – Brazil -Tel.: (61) 3327-2030/2031 www.gov.br/cvm CVM RESOLUTION NO. 124, OF JUNE 3, 2022 effectively "paid") as well as through a voting agreement, for example. Even in this case, there will be goodwill if the fair value of the pre-existing interest plus the fair value of the non-controlling interest exceeds the fair value of the net assets of the acquired entity at the date of the combination. Therefore, for the purposes of equity method accounting (in the parent's individual financial statements), the procedure of items 20 to 23 will also be required, as well as the difference between the fair value of the pre-existing interest and the parent's share of the fair value of the net assets must be recognized in the parent's individual financial statements as goodwill arising from expectation of future profitability - goodwill - note that this is the goodwill attributed to the parent. Conversely, a gain on a bargain purchase of control may arise in this situation.

Item 19 of Technical Pronouncement CPC 15 allows the non-controlling interest to be measured at the date of the business combination (obtaining control of the subsidiary) by two criteria, the first being "at fair value" of this interest. In this case, the positive difference between the fair value of the non-controlling interest and the amount corresponding to their share of the fair value of the net assets of the acquired entity, at the date of the combination, constitutes the part of the goodwill attributed to the non-controlling interests. Upon consolidation, this value (goodwill attributable to non-controlling interests) must be added to the line of goodwill attributable to the parent (which arises from the elimination of the investment in the subsidiary for consolidation purposes), credited to the non-controlling interests' share in consolidated equity.
The acquirer's option to measure the non-controlling interest at fair value must follow the guidelines of Technical Pronouncement CPC 46 – Fair Value Measurement. That is, this requirement also applies to other fair value measurements made to apply the acquisition method required by Technical Pronouncement CPC 15. The difference between the fair value of this non-controlling shareholders' interest and the proportional share of these shareholders in the fair value of the identifiable assets and liabilities of the acquired entity must be recorded as a complement to the goodwill (goodwill) attributable to the parent, thus composing the total goodwill of the combination, which will be presented in the consolidated financial statements. This fair value assessment of the non-controlling shareholders' interest will occur only at the date of the business combination. Subsequent to the combination, the goodwill (goodwill) of the combination (parent's part and non-controlling interests' part) will undergo an annual impairment test (see Technical Pronouncement CPC 01). The balance of the non-controlling interest to be presented in the consolidated balance sheet will correspond to the value of this interest at its initial recognition (in this case, the fair value) increased by the share attributable to them in the changes in the accounting equity of the subsidiary subsequent to the acquisition and decreased by the realization of the unrealized gain attributable to the non-controlling interests and by impairment losses that may be recognized in the goodwill.
It should be noted that only when the non-controlling interest is assessed at fair value can the goodwill arising from expectation of future profitability (goodwill) be determined in the consolidated balance sheet, representing the total goodwill of the acquired entity at the date of obtaining control (in this total goodwill, the part of the controlling partners and the part of the non-controlling partners will be summed). On the other hand, when the non-controlling interest is not assessed at fair value, only the goodwill relative to the controlling partners' part will appear in the consolidated balance sheet.

COMMISSION OF SECURITIES AND EXCHANGE
Sete de Setembro Street, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Cincinato Braga Street, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 SCN Q.02 – Bl. A – Corporate Financial Center Building, S.404/4th Floor, Brasília/DF – ZIP: 70712-900 – Brazil -Tel.: (61) 3327-2030/2031 www.gov.br/cvm CVM RESOLUTION NO. 124, OF JUNE 3, 2022 Therefore, in the absence of the assessment of the non-controlling interest at fair value, there is no need to attribute to the non-controlling interests in the consolidated balance sheet goodwill calculated based on the amount paid by the controlling partners, mainly due to the probable existence, in this, of the control premium. However, in the goodwill impairment test, item C4 of Technical Pronouncement CPC 01 so requires it extra-accountingly for the purposes of the impairment test. That is, the "implicit goodwill" of the non-controlling shareholders (calculated from the price paid by the controlling partners) is not recognized in the consolidated balance sheet, so to speak. This is only considered for the purposes of the impairment test.

The second criterion stated in item 19(b) of Technical Pronouncement CPC 15 the acquirer must measure the non-controlling interest "by the current proportional interest conferred by the equity instruments in the recognized amounts of the identifiable net assets of the acquired entity". In this case, the goodwill calculated for the combination, as already cited, will be solely the goodwill attributed to the parent, so that the goodwill attributable to the non-controlling interests will not be recognized in the consolidated financial statements. However, considering that in the accounting records of the acquired entity the assets and liabilities will remain at their original accounting values and not at their respective fair values, the acquiring entity must identify the difference between the fair value and the accounting value for each asset and liability of the acquired entity recognized in the combination (which includes the deferred tax liability) for the purpose of controlling its realization (through amortization, depreciation, depletion, sale, settlement, change in accounting value, write-off, impairment or any other change it may undergo), as per item 23(a). However, in the parent's investment sub-group in its individual financial statements, only the parent's share of this difference will be represented. This implies that the difference between the fair value and the accounting value of each asset (or liability) of the acquired entity, which constitutes the unrealized gain on assets and the corresponding deferred tax liability (or asset), in the part attributable to the non-controlling interests, will not be recorded in the parent's individual balance sheet, but must be recorded in the consolidated balance sheet and this will be done through the appropriate adjustments in each consolidation. It follows that:
(a) the amount mentioned in item 23(a), represented by the difference between the fair value of the acquired assets and liabilities and those recorded in the acquired entity at the original amounts, must be recognized in the consolidated balance sheet in its entirety and not only proportionally to the share obtained in the capital of the acquired entity by the parent (the same must occur with respect to the deferred tax liability (or asset) determined on this difference); the portion added by this calculation corresponds, in counterpart, to an adjustment in the non-controlling interests' share in the consolidated balance sheet. The total difference value between the acquired assets and liabilities must be allocated directly to the corresponding assets and liabilities. Subsequent to the acquisition, the realized portions (resulting from write-off, depreciation, amortization, depletion, sale, impairment, etc.) will be added to the respective items of the income statement and, if applicable, to other comprehensive income; and (b) the difference mentioned in item 23(b), represented by the goodwill paid for expectation of future profitability (goodwill) must continue to be classified in the intangible assets group in the consolidated financial statements, adjusted by the goodwill attributable to the non-controlling interests only if this non-controlling interest is assessed at fair value.

Individual Balance Sheet 1 of Company A
Diverse Assets $ 1,300 Capital $ 1,300

Individual Balance Sheet of Company B
Diverse Assets $ 2,000 Liabilities $ 800
Capital $ 1,200

Company A acquires 60% of the shares of Company B, whose identifiable assets at fair value correspond to $ 2,500 and liabilities to $ 800. Additionally, a contingent liability assessed at $ 200 was recognized, which was not recorded in Company B's financial statements. This liability can be recognized in the application of the acquisition method required by Technical Pronouncement CPC 15 because it meets the definition of a liability and has a reliable fair value. Therefore, the fair value of Company B's net assets is calculated at $ 1,500 ($ 1,200 of accounting equity, plus excess of fair values over accounting values of assets of $ 500, less $ 200 of the unrecognized contingency or otherwise, $ 2,500 of assets and $ 1,000 of liabilities). Since the fair value of the net assets (accounting basis for the net assets group of the acquired entity) exceeds the accounting equity (tax basis for the net assets group of the acquired entity, given that the acquired entity will continue to exist) by $ 300 and, assuming a marginal income tax and social contribution rate of 30%, then, the deferred tax liability to be recognized will be $ 90 by requirement of CPC 15 – Business Combinations and CPC 32 – Taxes on Profit. Thus, the final fair value of the net assets becomes $ 1,410 ($ 1,500 - $ 90).

Given that the present value of future cash flows expected to be generated by the business is greater than the maximum cash generated by the sale of assets and liabilities on a separate basis, naturally the value of the acquired business, as a going concern, will be greater than the fair value of the identified net assets. Thus, due to future profitability, the amount paid by Company A for the purchase of 60% of the shares of Company B was $ 1,100, which characterizes a goodwill arising from expectation of future profitability of $ 254 ($ 1,100 minus 60% of $ 1,410) attributable to the acquirer. And, assuming that Company A opts, at the date of acquisition, to measure the non-controlling interest by the value corresponding to their share in the fair value of the net assets of Company B ($ 564), then, there will be no goodwill attributable to the non-controlling interests and the value of $ 254 will be the goodwill of the combination itself.

Individual Balance Sheet 2 of Company A
Diverse Assets $ 200 Capital $ 1,300
Investment in Company B: (*)

Accounting value of Company B's Equity: $ 720
Unrealized gain on Company B's net assets: $ 126
Goodwill (goodwill) $ 254 $ 1,100
Totals $ 1,300 $ 1,300
(*) Detailing that is presented only for better visualization, as it should not be performed in the balance sheet, but only in the explanatory notes.

At the date of acquisition, the equity value of the non-controlling interest in Company B (accounting value) initially corresponds to 40% of $ 1,200 = $ 480. However, since Technical Pronouncement CPC 15 – Business Combinations requires the recording of assets and liabilities at their fair value in their entirety, as well as the deferred tax liability (given that in the case in question, the fair value exceeded the accounting value of the net assets), then, to the equity value of the non-controlling interest, the share attributable to them in the unrealized gain on the net assets (already net of the deferred tax liability) must be added.

Thus, in the consolidated position at the date of acquisition, the identified assets will be increased by $ 500 of gross unrealized gain (being $ 300 of the acquirer and $ 200 of the non-controlling interests), the liabilities will be increased by $ 200 related to the recognized contingent liability (being $ 120 of the acquirer and $ 80 of the non-controlling interests) and, finally, the deferred tax liability of $ 90 1 will be included (being $ 54 of the acquirer and $ 36 of the non-controlling interests). By doing this, the portion of the total net unrealized gain attributed to the acquirer, which is $ 126 ($ 300 - $ 120 - $ 54), is already contained in the accounting balance of the investment in the controlled entity. However, the portion attributed to the non-controlling interests, which is $ 84 ($ 200 - $ 80 - $ 36), is not present in either the accounting balance sheet of the acquired entity or the acquirer, and must be kept extra-accountingly for control purposes. In this way, the adjustments in the net assets, totaling $ 210 ($ 500 - $ 200 - $ 90) will have as a counterpart the elimination of the unrealized gain on net assets goodwill contained in the acquirer's investment in the controlled entity ($ 126) and an increase in the non-controlling interests' share ($ 84). The consolidated balance sheet at the date of acquisition will therefore be:

1 It is assumed that there are only temporary differences.

Consolidated Balance Sheet of Company A at the date of acquisition of control of Company B Diverse Assets $ 2,700() Liabilities $ 1,000 () Goodwill (goodwill) $ 254 Deferred tax liability $ 90 Capital $ 1,300 Non-controlling interests $ 564 () Totals $ 2,954 $ 2,954 () $ 200 + $ 2,000 + $ 500 = $ 2,700 () $ 800 + 200 = $ 1,000 () 40% x ($ 1,200 + $ 500 - $ 200 - $ 90) = $ 564

If the acquirer opts to measure the non-controlling interest at fair value and this corresponds to $ 670, for example, then Company A may, in its consolidated balance sheet at the date of obtaining control, recognize this interest with this value, with the differential being treated as goodwill arising from expectation of future profitability (goodwill) attributable to the non-controlling interests and integrating the goodwill of the combination (Technical Pronouncement CPC 15 – Business Combinations, item 19). In this case, $ 360 will represent the total goodwill of the combination, resulting from the sum of the part paid by the parent in the acquisition ($ 254) with the part attributed to the share of the other partners ($ 106). The Consolidated Balance Sheet of Company A at the date of acquisition will then be represented as follows (the individual balance sheet does not change):

Consolidated Balance Sheet of Company A at the date of acquisition of control of Company B (with non-controlling interest at fair value) Diverse Assets $ 2,700 Liabilities $ 1,000 Goodwill (goodwill) $ 360 Deferred tax liability $ 90 Capital $ 1,300 Non-controlling interests $ 670 () Totals $ 3,060 $ 3,060 () remember that, for presentation purposes, the non-controlling interest must be included within the consolidated equity, segregated from the part of the equity attributable to the owners of the parent.

Goodwill paid for expectation of future profitability in the acquisition of interest in an associate or in a jointly controlled entity assessed by the equity method

In the case of investment in an associate or in a jointly controlled entity, the identifiable net assets of the investee (including the corresponding deferred tax liability or asset) at the date of obtaining significant influence (or joint control) must also be measured at fair value, and the investee's financial statements must previously be adjusted to the investor's accounting practices, as mentioned in items 19 and 20.

An investment in a jointly controlled entity or in an associate must be accounted for in the investor's individual financial statement, using the equity method from the date it becomes a jointly controlled entity or associate. At the acquisition of the investment, any difference between the cost of the investment (amount given in exchange for the purchased interest plus the fair value of any pre-existing interest in the investee, if any) and the investor's share of the net fair value of the identifiable assets and liabilities of the jointly controlled entity or associate (already net of the deferred tax liability or increased by the deferred tax asset) must be accounted for in the same manner as described in this Interpretation for investment in a controlled entity, except for what is stated in item 37.
In the case of applying the equity method to associates or jointly controlled entities, the goodwill arising from expectation of future profitability (goodwill) must be contained in the accounting balance of the investment to be presented in the balance sheet of the investing entity, recorded within the investment sub-group in non-current assets, and cannot be presented separately in the intangible assets sub-group.
Therefore:
(a) the goodwill arising from expectation of future profitability (goodwill) relevant to a jointly controlled entity or associate must be contained in the accounting balance of the investment account and must not be amortized in a linear or constant manner, with the investment as a whole (i.e., including the goodwill) being tested annually (or more frequently if there is evidence for such) against the recoverable amount; (b) the investor's share of the net fair value of the identifiable assets and liabilities of the associate or jointly controlled entity (already net of the deferred tax liability or asset) that exceeds the cost of the investment (which results in a gain on a bargain purchase) must be analyzed (reviewed) in accordance with the requirement of Technical Pronouncement CPC 15 – Business Combinations, which will result, in particular situations, in the recognition of a gain in the acquiring entity.
Upon recognition of an interest in an associate or in a jointly controlled entity, the value of the difference between the share of the acquired entity's equity with its assets and liabilities assessed at fair value (including the deferred tax liability or asset) and the accounting value of this same share must be subdivided and treated accounting-wise as in the case of investment in a controlled entity, as per item 23(a).

Expectation of future profits with defined term; rights of concession, exploration and similar

As a rule, the goodwill paid for expectation of future profitability (goodwill) is an intangible asset with an indefinite useful life, which is why it is not subject to systematic amortization over time, being, on the other hand, subjected to at least an annual test regarding its recoverable amount (Technical Pronouncement CPC 01 – Impairment of Assets).

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 SCN Q.02 – Bl. A – Ed. Corporate Financial Center, S.404/4º Andar, Brasília/DF – CEP: 70712-900 – Brasil -Tel.: (61) 3327-2030/2031 www.gov.br/cvm RESOLUÇÃO CVM Nº 124, DE 3 DE JUNHO DE 2022
41. However, there may be situations where the expectation of future profits has its economic benefit limited in time (defined term). This may occur in situations where the value paid in excess of the fair value of the acquired net assets arises not only, for example, from a concession right with a defined useful life, but also from synergistic effects expected to produce an increase in profitability.
42. The CPC understands that there is no goodwill paid for expectation of future profitability (goodwill) for the value paid that refers specifically to concession rights, exploration rights, and similar rights, including when acquired in a business combination where the acquired entity is a concessionaire, whose concession right has a known and defined term. Goodwill exists only to the extent that there is no condition for recognition of an identifiable intangible asset, according to the recognition rules of Technical Pronouncement CPC 15.
43. In the case of an intangible asset, including that mentioned in item 41, there is amortization, and it is made during this useful life, as treated in Technical Pronouncement CPC 04 and also the application of the recoverability test of Technical Pronouncement CPC 01.
44-47. (Eliminated).
Unrealized profits in transactions with an affiliate or jointly controlled entity
48. Technical Pronouncements CPC 18 – Investment in Affiliate, Controlled Entity and Jointly Controlled Entity and CPC 36 – Consolidated Financial Statements deal with unrealized profits between the investing entity and its investees or between direct or indirect subsidiaries of the same controlling entity.
49. In transactions involving the sale of assets by the investor to an affiliate (downstream), unrealized profits are considered, in proportion to the investor's participation in the affiliate, those obtained in transactions of assets that, at the time of the financial statements, still remain in the affiliate. By definition, this affiliate must have a controller that is not this investor, or must not have a controller, in order for there to be only a relationship of significant influence and not control between the investor and the affiliate, and for both not to be considered under common control.
Contributions of assets for capitalization in the investee are equated to a sale, for purposes of unrealized profit. And an affiliate is equated to a jointly controlled entity.
50. Thus, in the sale (or capital contribution in assets) by the investor to the affiliate (or jointly controlled entity), the portion of the profit proportional to the participation of the other partners in the affiliate who are independent parties of the investor or of the controllers of the investor must be considered realized in the investor. After all, the sale transaction occurs between independent parties, as the affiliate has a controller different from the controller of the investor. These procedures must also be applied for the case of an affiliate and/or investor without a controlling partner. For example, an asset with a book value of $ 1,000,000 is sold by Company A for $ 1,400,000 to its affiliate B, in which A participates with 20% of the voting capital. The tax on this profit is $ 150,000, so the investor's result is affected by the net value of $ 250,000. When selling to the affiliate, it is as if it were selling with profit only on the part of the sale to investors who hold 80% of B's share capital. Company A should not consider realized the portion related to its own participation, that is, 20% of $ 250,000 = $ 50,000.
50A. The unrealized profit, as stated in item 50, must be recognized as the asset is sold to third parties, or is depreciated, or suffers impairment or is written off for any other reason.
51. The sale transaction must be recorded normally by the investor (corresponding revenues and expenses), and the elimination of unrealized profits must be made in the investor's individual result, in the equity method result line (and if applicable in the consolidated result), by recording the unrealized portion as a credit to the investment account, until the effective realization of the asset in the affiliate (or jointly controlled entity). In the example of item 50, the result is debited (in an account of the same group as the revenue or expense of the equity method, as it is an effect resulting from its involvement with the investee), crediting a sub-account correcting the investment in B by $ 50,000 of unrealized profit. Portions of sales, cost of goods or products sold, taxes, and other applicable items should not be eliminated in the investor's result statement, as the transaction as a whole occurs with genuine third parties, leaving only the due portion of the profit unrealized. Deferred taxes must be recognized, when applicable, according to Technical Pronouncement CPC 32 – Taxes on Profit.
52. In the investor, in its individual financial statements and, if applicable, in the consolidated ones, the elimination referred to in item 51 occurs in a line immediately after the equity method result (suppose $ 500,000, for example purposes), with emphasis in the result statement itself or in explanatory notes.
Example:
Equity method result on investments in affiliate and jointly controlled entity...............................$ 500,000 (-) Unrealized profit in transactions with affiliate and jointly controlled entity.................................................$ (50,000) $ 450,000
53. In transactions involving the sale of the affiliate (or jointly controlled entity) to its investor, unrealized profits from transactions of assets still in the possession of the investor or its subsidiaries must be eliminated as follows: for the calculation of the equity method result, the entire profit considered as unrealized by the investor is deducted from the investee's net income. For example, affiliate D obtained a net profit of $ 800,000, of which $ 300,000 is profit (already net of tax on the result) from a sale transaction to investor C of an asset that is still in C's assets. This investor holds 30% of D. Thus, investor C should not recognize the portion corresponding to 30% on the $ 300,000 profit from the transaction between the affiliate and itself, as it is not realized, applying the equity method on 30% of the remaining net income of C, that is, 30% x ($ 800,000 - $ 300,000) = $ 150,000. The remaining $ 90,000 (30% x $ 300,000) will be recognized by C as the asset in question is realized, as stated in item 50A. Note that this treatment automatically reduces the accounting balance of the investment since instead of being debited $ 240,000 (30% x $ 800,000) only $ 150,000 ($ 240,000 - $ 90,000) will be debited.
54. The existence of transactions with commercial nature 2 between the investor and the investee involving assets that generate losses is, normally, evidence of the need to recognize impairment, according to Technical Pronouncement CPC 01 – Reduction to Recoverable Amount of Assets, or reduction to realizable value, according to Technical Pronouncement CPC 16 – Inventories, which may lead to no elimination of this loss. After all, if the loss is characterized by non-recoverability of the asset, this loss must be recognized, according to the cited Pronouncements, before the sale transaction, even if only for the purpose of calculating the equity method result by the investor when the asset is in the affiliate or jointly controlled entity. This concept must also be applied to transactions with subsidiaries.
Unrealized profits in transactions between controlling entity and subsidiary and between subsidiaries
55. In transactions with subsidiaries, unrealized profits must be fully eliminated in transactions involving the sale by the controlling entity to the subsidiary, which must be recognized in the subsidiary's result only when the transacted assets are realized (by use, sale, or loss) in the investee. Profits contained in the asset of any entity belonging to the same economic group are considered unrealized, not necessarily in the subsidiary to which the controlling entity originally made the transaction.
55A. Item 55 must be applied when the controlling entity is, in turn, controlled by another entity of the same economic group. For example, controlling entity E controls F, which, in turn, controls G; F must fully eliminate any unrealized profit when selling an asset to G, as it is the controlling entity of G.
55B. In individual financial statements, when there are transactions involving the sale of assets by the controlling entity to its subsidiaries (downstream), the elimination of unrealized profit must be made in the controlling entity's individual result, deducting one hundred percent of the profit contained in the asset still in the possession of the economic group, in counterpart to the investment account (as if it were a return of part of this investment), until its effective realization by the write-off of the asset(s) in the subsidiary(ies). 55C. The elimination referred to in item 55B in the result statement must be made in a line immediately after the equity method result, with emphasis in the result statement itself or in explanatory notes, according to item 52. Portions of sales, cost of goods or products sold, taxes, and other applicable items may be eliminated in the controlling entity's result statement, as the transaction as a whole does not occur with genuine third parties. If not eliminated, these values must be evidenced in the result statement itself or in explanatory notes.

2 CPC 27 – Property, Plant and Equipment defines what is a transaction with commercial nature (see item 25).

In transactions involving the sale of the subsidiary to the controlling entity (upstream) or to other subsidiaries of the same economic group, the profit must be recognized normally by the seller. In the case of an affiliate and a jointly controlled entity, the same procedure is adopted.
56A. In the controlling entity's individual financial statements, when there are transactions involving the sale of assets by the subsidiary to the controlling entity or between subsidiaries, the equity method calculation must be made by deducting, from the subsidiary's net equity, one hundred percent of the profit contained in the asset still in the possession of the economic group. With this, the controlling entity must record a result value of zero, not having, therefore, any effect on its result and its net equity as a consequence of the result recognized by the subsidiary. 56B. In the consolidated balance sheet, the portion of the subsidiary's result attributable to non-controlling interests must be adjusted as a result of the elimination of unrealized profits. Example:
Co. A Co. B Debit Credit Consolidated cash 600 200 800 inventories 350 350 Inv. B 385 0 385 0 Total 985 550 1,150 Equity Capital 985 550 550 985 NCI 165 165 Total 985 550 1,150 Information:
Co. "A" controls Co. "B", with 70% participation in its capital Co."B" sells 40% of its inventories for cash for $160 There is no taxation

Co. A Co. B Debit Credit Consolidated cash 440 360 800 inventories 160 210 20 350 Inv. B 385 385 0 Total 985 570 1,150 Equity Capital 985 550 550 985 Retained Earnings 20 20 NCI 6 171 165 Total 985 570 576 576 1,150 IS: Equity Method Calculation:
Revenue Sales 160 Final Equity "B" 570
COGS -140 Unrealized Profits -20
LB 20 Base 550
Result. Equity Part. % "A" 70%
Net Income 20 Final Bal. Inv. "B" 385
Initial Bal. Inv. "B" -385
Equity Result 0
57-59. (Eliminated).
Equity method on other comprehensive income
60. In the application of the equity method on an affiliate, controlled entity, or jointly controlled entity, the equity method result must, basically, represent the investor's portion of the investee's net income. The equity method on other comprehensive income of the investee must be recognized, in the investor, also directly against its net equity, as part of other comprehensive income of the investor.
61. Thus, changes in the investee's net equity that do not pass or will only pass in the future through the investee's result, such as: exchange rate variation adjustments on investments abroad and gains or losses on translation (Technical Pronouncement CPC 02 – Effects of Changes in Exchange Rates and Translation of Financial Statements); certain actuarial gains and losses (Technical Pronouncement CPC 33 – Employee Benefits); variations in the fair value of available-for-sale financial assets (Technical Orientation OCPC 03 – Financial Instruments: Recognition, Measurement and Disclosure and Technical Pronouncement CPC 38 – Financial Instruments: Recognition and Measurement); variations in the fair value of hedging instruments in hedge accounting (Technical Pronouncement CPC 38); realization of revaluation reserves (Technical Pronouncement CPC 27 – Property, Plant and Equipment), etc., should not pass through the investor's result as equity method result.
Other aspects of the equity method
62. In subsequent applications of the equity method to the initial application, the same procedures required in items 19 and 20 regarding off-balance sheet adjustments of the investee to use the same accounting practices as the investor and regarding the maintenance of the fair values of the investee's assets and liabilities determined at the acquisition date, including the deferred tax liability (or asset), must be observed.
63. In the case of recognition by a subsidiary of an adjustment for a prior period due to a change in accounting practice or correction of an error and consequent retrospective restatement of its financial statements, the controlling entity must recognize its portion of this adjustment and must also proceed with the retrospective restatement of its financial statements, according to Technical Pronouncement CPC 23 – Accounting Policies, Change in Estimate and Correction of Error. If the same occurs with an affiliate or a jointly controlled entity, the investor may proceed in the same way or recognize its portion of the equity method result, providing the appropriate disclosure of the fact and the value involved.
Variations in the percentage of participation in subsidiaries
64. After acquiring control of the entity, both become part of the same economic group, and this economic entity is obliged, by Technical Pronouncement CPC 36 – Consolidated Financial Statements, as well as by international accounting standards, to prepare and present consolidated financial statements as if they were a single entity. There must be appropriate disclosure of the portion of equity and result belonging to those who are shareholders only in the subsidiaries, but not in the controlling entity (called non-controlling shareholders), but by this same Technical Pronouncement CPC 36 and by these same international accounting standards, the net equity must be considered in its entirety and the net result as well. The participation of non-controlling interests is a portion of the consolidated entity's net equity; therefore, transacting with non-controlling shareholders is transacting with shareholders of this same net equity.
65. As a consequence of the previous item, subsequent transactions in which the controlling entity acquires, from the non-controlling shareholders of this same equity, new equity instruments (shares or quotas, for example) of a subsidiary, come to be characterized as transactions between the entity and its shareholders, unless it is an alienation of an investee that characterizes the loss of control of its subsidiary. That is, these are transactions that resemble that in which the entity acquires shares or quotas of its own shareholders.
66. Therefore, Technical Pronouncement CPC 36 requires, in its items 23 and 24, that changes in the controlling entity's relative participation in a subsidiary that do not result in the loss of control must be accounted for as equity transactions (that is, transactions with shareholders, in the capacity of owners) in the consolidated financial statements. In such circumstances, the carrying amount of the controlling entity's participation and the carrying amount of the non-controlling interests must be adjusted to reflect the changes in the relative participations of the parties in the subsidiary. Any difference between the amount by which the non-controlling interests' participation has been adjusted and the fair value of the amount received or paid must be recognized directly in the net equity attributable to the owners of the controlling entity, and not as a result.
67. Therefore, if the controlling entity acquires more shares or other equity instruments of an entity it already controls, it must consider the difference between the acquisition value and the acquired accounting book value in counterpart to its net equity (individual and consolidated), similarly, for example, to the purchase of treasury shares. In the case of alienation, as long as control over the subsidiary is not lost, the difference must also be allocated directly to net equity, and not to the result.
68. In the controlling entity's individual financial statements, the equity transactions mentioned in item 66 must reflect the situation of this controlling entity individually, but without losing sight of the fact (what is stated in item 66) is linked to the concept of the economic entity as a whole, and in this concept are involved the equities of the controlling entity and the subsidiary. This is also the objective of applying the equity method. In this individual balance sheet, there is no pure and completely isolated reproduction of the controlling entity, which should only be presented in the separate statements.
69. In the controlling entity's separate financial statements, if presented, the equity transactions mentioned in item 66 must be considered as alterations of its investments, whether when evaluated by the fair value method or by the cost method. In these statements, the underlying idea is exactly that of no integration between the investor and subsidiaries (and affiliates or jointly controlled entities, if applicable), but rather the characterization of the investments as businesses of the controlling entity. In this case, in the controlling entity's separate financial statements, the acquisition of, or sale to, non-controlling shareholders of its subsidiaries is characterized, for the controlling entity, as transactions with third parties, and not with shareholders of the same economic group. Consequently, adjustments resulting from these transactions, if any, must be recorded in its result, and not in its net equity.
Example:
Co. A acquires, for $ 1,300, 80% of the shares of Co. B, which has net accounting equity equal (for simplification) to its fair values, in the amount of $ 1,250. With this, it pays goodwill for expectation of future profitability in the amount of $ 300 ($ 1,300 – 80% of $ 1,250). Thus, the balance sheet (classifications disregarded) of Co. A will be represented as follows:

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL
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RESOLUTION CVM NO. 124, OF JUNE 3, 2022

Individual Balance Sheet 1 of Company A

Diverse Assets $ 1,000
Investment in controlled Company B (80% of shares) (*) Fair value in liquid assets $ 1,000 Goodwill $ 300

Capital $ 1,500
Reserves $ 800
$ 1,300

$ 2,300 $ 2,300

(*) Note that the investment in controlled Company B is composed of two portions in sub-accounts that are not evidenced in the balance sheet, but which need to be evidenced in explanatory notes: one referring to the fair value of the liquid assets of controlled Company B, in the amount of $ 1,000 (in the given example, the book value coincides with the fair value of the liquid assets, so there is no premium and its corresponding deferred tax liability), and another referring to the goodwill in the purchase of control of B, in the amount of $ 300. This evidence should not be made in the balance sheet, but only in explanatory notes; this evidence was made in this example and will be made in the other examples only for better understanding.

Assume the balance sheet of Company B to be:

Balance Sheet of Company B

Diverse Assets $ 1,250
Capital $ 1,250

The consolidated balance sheet of Company A and its controlled, at this date, will be represented as follows:

Consolidated Balance Sheet 1 of Company A

Diverse Assets $ 2,250
Goodwill (*) $ 300

Capital $ 1,500
Reserves $ 800
Non-controlling interest $ 250

$ 2,550 $ 2,550

(*) Note that the premium (goodwill) is registered, in the consolidated balance sheet, in the intangible asset, at account level, and not at sub-account level as in the individual balance sheet.

Assume, now, an operation apparently unlinked to the subject matter, but introduced only to show the relationship between the acquisition of own shares and the acquisition of shares of non-controlling parties, that Company A acquires 5% of its own share capital for $ 200; if its own balance sheet is also at fair values, this implies buying 5% of $ 2,300 (R$ 115) for $ 200, implicitly paying a premium of $ 85. But this premium should not be evidenced, leaving its individual balance sheet represented as follows:

[Header Repeated]

Individual Balance Sheet 2 of Company A

Diverse Assets $ 800
Investment in controlled Company B (80% of shares) (*) Fair value in liquid assets $ 1,000 Goodwill $ 300 Treasury Shares () $ (200)

Capital $ 1,500
Reserves $ 800
$ 1,300

$ 2,100 $ 2,100

(*) Opening only for better visualization.
() Note that these treasury shares are composed of: fair value, $ 115, and premium, $ 85, but should never be evidenced or even treated with this division. This premium must be included in the total cost accounted for as a reduction of its equity, and not in the intangible asset, also in accordance with previous Brazilian accounting legislation and practices and also in accordance with international accounting standards.

In the consolidated balance sheet of Company A, assuming no change in the balance sheet of Company B, the following will be obtained:

Consolidated Balance Sheet 2 of Company A

Diverse Assets $ 2,050

Capital $ 1,500
Reserves $ 800
Goodwill $ 300
Treasury Shares $ (200)
Non-controlling interest $ 250

$ 2,350 $ 2,350

Assume now that Company A acquires, from the non-controlling partners of Company B, an additional 10% of the capital of this controlled Company B for $ 150. Assuming no change in the balance sheet of Company B, 10% of the equity of Company B at book values and at fair values corresponds to $ 125, verifying the implicit payment of a premium of $ 25.

According to the determination of Technical Pronouncement CPC 36, the accounting for these $ 25 must be as a reduction of consolidated equity. For coherence, and so that the individual balance sheet has the same equity as the consolidated one, there must also be a reduction in the equity of the individual balance sheet of Company A. In this case, this reduction, explained after seeing, ahead, the consolidated balance sheet, will be that related to the additional premium (goodwill) in this acquisition, which will not be treated as an increase in the intangible asset. However, in practice, these transactions occur on dates subsequent to the combination date, so that the value paid for the purchase of more capital of the controlled may contain not only goodwill, but also appreciation (at current prices). Despite this, what can be registered in the investment account by the additional purchase of participation is only the book value of the additional participation purchased, provided that the parent has measured the non-controlling interest at fair value on the combination date, since if the alternative criterion had been used, then in the consolidated financial statements the existing goodwill must be fully attributable only to the parent.

[Header Repeated]

Thus, the $ 125 related to the fair value of the acquired liquid assets must remain, in the individual balance sheet, registered as an increase in the investment in controlled Company B (in the consolidated it will obviously be eliminated against the equity of Company B) and the $ 25 will remain as a reduction of the equity of the parent both in the individual and consolidated statements. The individual balance sheet of Company A will then be represented as follows:

Individual Balance Sheet 3 of Company A

Diverse Assets $ 650
Investment in controlled Company B (90% of shares) (*) Fair value in liquid assets $ 1,125 Goodwill $ 300

Capital $ 1,500
Reserves $ 800
Treasury Shares () $ (200)
Premium in capital transactions (*) $ (25)

$ 2,075 $ 2,075

() Opening only for better visualization.
() contains premium paid to third parties on its own equity of $ 85, as already seen.
() premium on the equity of its controlled, which, being its controlled, is a premium on its own equity also. Thus, the two premiums are reducers of equity. The equity equivalence on the value of the equity contained in the treasury shares must also be registered as a reducer of equity, but the value on the equity of controlled Company B must remain in the asset, including for elimination in the consolidation of the two balance sheets.

Item B96 of Technical Pronouncement CPC 36 – Consolidated Financial Statements requires that “The entity must recognize directly in equity any difference between the value by which non-controlling interests are adjusted and the fair value of the consideration paid or received and must attribute this difference to the owners of the parent.” That is, the difference between the value of the non-controlling interest to be reduced by the operation, in the case of $ 125 (it was $ 250 before, with 20% of the equity of $ 1,250 of Company B, and now changes to $ 125, by becoming 10% of the same equity; thus, the reduction is $ 125) and the value of the payment for it, $ 150, in the amount of $ 25, must be recognized directly in equity in the portion attributable to the owners of the parent.

The accounting in this individual balance sheet is better understood from the consolidated balance sheet. This will be represented as follows:

[Header Repeated]

Consolidated Balance Sheet 3 of Company A

Diverse Assets $ 1,900

Capital $ 1,500
Reserves $ 800
Treasury Shares $ (200)
Goodwill $ 300
Premium in capital transactions (*) $ (25)
Non-controlling interest $ 125

$ 2,200 $ 2,200

(*) In fact, the two premiums in the purchases of shares of companies of the same economic group are recognized as reducers of equity. But the one related to the treasury shares is implicitly within the item “treasury shares”. The fair book value of the treasury shares remains as a direct reducer of equity, as always.

It is seen that, in the consolidated balance sheet, the total equity of $ 2,200 is divided into two parts: $ 125 belonging to the non-controlling parties, and $ 2,075 belonging to the partners of Company A. It is now clearer why the individual equity of Company A, which needs to appear as $ 2,075, also needs to consider the premium in the acquisition of shares of non-controlling parties as a reducer of the equity of parent A (individual balance sheet 3 of Company A above). If one considers, in this individual balance sheet of Company A, the premium (goodwill) in this acquisition with the non-controlling parties of $ 25 as an increase in the premium originally paid in the acquisition of Company B of $ 300, the equity of Company A will appear different from the consolidated one. When the investment in controlled is evaluated by the equity method, what is sought is exactly the equality between net profit and equity between this individual balance sheet and the consolidated one (in the part of the equity belonging to all partners of the parent, that is, to the part of the portion belonging to non-controlling partners).

This is the basic philosophy of the equity method when applied in the individual balance sheet of the parent.

If the non-controlling interest had been evaluated at fair value at the time of the combination, and not based on the fair value of the assets and liabilities of the controlled, and assuming that the 20% of the non-controlling interest before the second acquisition of shares by the parent had a fair value of $ 300, the consolidated balance sheet 2 of Company A would be represented as follows:

Consolidated Balance Sheet 2 of Company A, with non-controlling interest at fair value

Diverse Assets $ 2,050

Capital $ 1,500
Reserves $ 800
Goodwill $ 350
Treasury Shares $ (200)
Non-controlling interest $ 300

$ 2,400 $ 2,400

The goodwill of the combination is now $ 350 because it contains the goodwill attributable to the parent of $ 300 (the same as before) and the goodwill attributable to the non-controlling parties of $ 50 ($ 300 fair value - $ 250 of their part in the fair value of the liquid assets that, in the example, coincided with the book value). It is worth remembering that, according to Technical Pronouncement CPC 15, the non-controlling interest is measured at fair value only on the date of acquisition of control and not in subsequent periods. The determination of this participation in subsequent consolidated positions will be given by its value at initial recognition (fair value on the combination date), increased or reduced by the part that falls to them in the mutations of the book equity of the controlled, the realization of the appreciation, the impairment losses of the goodwill attributable to them and the adjustments by change in relative participation (with effects on the book value of this participation and on the appreciation and the corresponding goodwill).

In this case, an additional acquisition of 10% by the parent for $ 150 would cause an accounting record in the subsequent consolidated balance sheet: the non-controlling interest would fall to $ 150, and thus there would be no record of the goodwill included in this acquisition against the equity of the controlling partners of Company A, but, rather, against the non-controlling interest itself.

However, it is worth highlighting the simplicity of the example in treating both transactions (combination and additional acquisition of participation) as occurring on the same date, which does not occur in practice.

Thus, the lack of difference between the value paid and the adjustment in the account representing the non-controlling interest is due only to this simplification.

The balance sheet, after this acquisition, would be represented as follows:

Consolidated Balance Sheet 3 of Company A, with non-controlling interest at fair value

Diverse Assets $ 1,900

Capital $ 1,500
Reserves $ 800
Treasury Shares $ (200)
Goodwill $ 350
Premium in capital transactions (*) $ 0
Non-controlling interest $ 150

$ 2,250 $ 2,250

The view of the reflections of these operations in the individual balance sheet of the parent in a different way, that is, without the view in this individual balance sheet of the economic entity as a whole, or of this simplified representation provided by the equity method, is never given by the individual balance sheet with the evaluation of investments in controlled by the equity method.

For this, there are separate statements, with investments evaluated at fair value or even by cost; the previous example is expanded below with this assumption.

Continuation of the example with the use of separate statements:

Assume that Company A concludes that the separate statements should also be prepared and disclosed, with corporate investments evaluated at fair value, considering that its investment in controlled Company B is of such nature that the consolidated balance sheet, considering both as an economic entity, is not the best representation of its reality.

[Header Repeated]

In the first separate balance sheet, there is nothing to change if it has just acquired the 80% of the shares of Company B, and the acquisition value must represent the fair value at that moment. (If the acquisition had occurred previously, the difference would be registered in profit reserves or accumulated losses in equity).

Separate Balance Sheet 1 of Company A

Diverse Assets $ 1,000
Investment in controlled Company B (80% of shares) (*) $ 1,300

Capital $ 1,500
Reserves $ 800

$ 2,300 $ 2,300

(*) evaluated at fair value (on the combination date, the value paid is representative of the fair value).

When acquiring its own shares, nothing changes in the fair value of its controlled B, and one will have:

Separate Balance Sheet 2 of Company A

Diverse Assets $ 800
Investment in controlled Company B (80% of shares) () $ 1,300 Treasury Shares () $ (200)

Capital $ 1,500
Reserves $ 800

$ 2,100 $ 2,100

(*) evaluated at fair value (on the combination date, the value paid is representative of the fair value).

Assume that, immediately before the acquisition of an additional 10% of the shares of Company B for $ 150, the fair value of the 80% of the shares previously acquired is $ 1,400 (proportionally this value is more than the value of the second acquisition, given the fact that the previous lot includes the value related to the control premium). And assume that the total value, then, of the 90% of the shares of Company B now owned by Company A, has a fair value of $ 1,550. The difference between the previous fair value of the 80% ($ 1,300) and the new one ($ 1,400) will have impacted the result and the equity of Company A, whose reserves will go from $ 800 to $ 900. However, if the fair value changes will be computed in the period result or as other comprehensive income (equity valuation adjustments), it will depend on the classification given to the financial asset according to Technical Pronouncement CPC 38 – Financial Instruments: Recognition and Measurement (as designated at fair value through result or as available for sale).

The relevant now is to verify that this additional lot of 10% of the shares of Company B, acquired for $ 150, has this fair value of $ 150 at this moment and, from the absolutely individual point of view of Company A, but without considering the investment in Company B as reflecting an extension of the economic entity Company A, and, rather, a mere corporate investment, with a total fair value of $ 1,550. For this situation there is no talk of similarity to treasury shares, because, for Company A, the other partners in Company B are not its partners, but investors in the form of third parties, since Company A is, in the separate statements, providing exactly this view. Its separate balance sheet will now be represented as follows:

[Header Repeated]

Separate Balance Sheet 3 of Company A

Diverse Assets $ 650
Investment in controlled Company B (90% of shares) (*) $ 1,550

Capital $ 1,500
Reserves $ 900
Treasury Shares (*) $ (200)

$ 2,200 $ 2,200

(*) evaluated at fair value

The fair value of the treasury shares was not considered here, which are shares of Company A itself, which could have changed value. But, as in the case of alienation of these shares, their value mutation is against the reserves that support them. Thus, the equity of Company A would continue to have exactly the same $ 2,200.

In the case of acquisition of more equity instruments of the controlled with gain by advantageous purchase, a similar adjustment must be made, now with a positive balance account in equity.
Similar effects in the sale of equity instruments must also be registered thus, except when a sale produces loss of control of the invested entity, when the procedures required by Technical Pronouncement CPC 36 – Consolidated Financial Statements must be observed (see items 70A to 70C).

Loss of control and changes in participation in controlled

70A. In the case where the parent loses control of the controlled, as provided in items 25 and B97 to B99 of Technical Pronouncement CPC 36 – Consolidated Financial Statements, it must (i) de-recognize the value of the investment of the former controlled in the individual balance sheet and, in the case of the consolidated balance sheet, de-recognize the assets and liabilities of the former controlled; and (ii) recognize the remaining investment in the former controlled, if any, at its fair value on the date when control was lost, both in the individual statements and in the consolidated statements.

70B. The fair value referred to in the previous item must be considered as the fair value at initial recognition of financial asset according to Technical Pronouncement CPC 38 – Financial Instruments: Recognition and Measurement or, when appropriate, as cost at initial recognition of investment in affiliated company or jointly controlled entity (see item 70C).

70C. When the remaining investment in the former controlled is still subject to the application of the equity method due to the investor losing control, but maintaining significant influence or joint control, in accordance with Technical Pronouncement CPC 18 – Investment in Affiliated Company, Controlled and Jointly Controlled Entity, the investor must: (i) consider the fair value, on the date when control is lost, of the remaining portion as the new cost of the investment; (ii) recognize any differences between the new cost of the investment and the investor's participation in the fair value net of identifiable assets and liabilities of the investee in the terms of items 25 and 26 of Technical Pronouncement CPC 36; and (iii) begin to apply the equity method, in accordance with the provisions of Technical Pronouncement CPC 18, when

3 The process of revising accounting standards to regulate business combinations was one of the joint projects involving the boards of the FASB and the IASB, aiming for convergence between USGAAP and IFRSs. This was also the case with fair value, IFRS 13 (CPC 46), and is currently the case with financial instruments.
4 Thus are classified combinations documented in literature as roll-up transactions or put-together transactions, operations through which investors – generally private equity funds – acquire multiple companies in the same market (excessively fragmented markets with high competition) and combine them subsequently, with the primary objective of reducing costs and obtaining economies of scale.
5 True mergers of control (true mergers) and acquisitions of control are, in the view of the FASB and IASB boards, economically similar.

small companies in the same market (excessively fragmented markets with high competition) and combine them subsequently, with the primary objective of reducing costs and obtaining economies of scale.
5 True mergers of control (true mergers) and acquisitions of control are, in the view of the FASB and IASB boards, economically similar.

CVM Resolution No. 124 of June 3, 2022

Lineage: Superseded

Timeline

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