Week 5 20 Jan. (DM)Lecture Topic 9
Consolidation: Non-controlling interest
•Describe the nature of non-controlling
interest and the allocation issue in
consolidation accounting
•Prepare consolidation journal entries for
the non-controlling interest
o Pre-acquisition capital and rerves
o Post-acquisition rerves
o Current net profit
o Unrealid profits and excess
depreciation
•Prepare comprehensive consolidation
worksheet
Practice Questions:
Picker et al, Ch.25
DQ1, DQ2, DQ3, DQ4,
DQ5
Exerci 25.4 (Altered)
Exerci 25.5
Exerci 25.9
Chapter 25: Consolidation: Non-controlling interest
DISCUSSION QUESTIONS
1.What is meant by the term “non-controlling interest” (NCI)?
NCI is the term ud for the ownership interest in a subsidiary other than the parent.
It is defined in para 4 of AASB 127 as:
The equity in a subsidiary not attributable, directly or indirectly, to a parent.
2.Explain whether the NCI is better classified as debt or equity.
The main argument for the NCI being classified as equity is that it better fits the definition of equity. The subsidiary has no prent obligation in relation the NCI so the NCI does not meet the definition of a liability.
As explained in Chapter 22, many argue that NCI should be disclod parately from equity and liabilities – the “mezzanine” treatment. This argument relates to the utility of financial statements in relation to the ur group, the parent shareholders. It is argued that this form of prentation provides more relevant information to the parent shareholders.
3.Explain whether the NCI is entitled to a share of subsidiary equity or some other
amount.
If the NCI is classified as equity, it reprents an interest in the consolidated equity.
Note that the consolidated equity of relevance to the NCI is the subsidiary equity adjusted for the effects of intragroup transactions – that is, realid subsidiary equity.
4.How does the existence of an NCI affect the business combination valuation
entries?
There is no effect on the accounting entries as such.
Why? The BCVR entries, apart from that for goodwill, are prepared becau of the requirement of AASB 3 to show the identifiable asts and liabilities of the acquiree at fair value. The determination of fair value is not affected by the parent’s ownership in the subsidiary.
However if the full goodwill method is ud the amount of goodwill recognid will be greater than where the partial goodwill method is ud
5.How does the existence of an NCI affect the pre-acquisition entries?
The pre-acquisition entry eliminates the investment account recorded by the parent and the pre-acquisition equity of the subsidiary, as well as recognising any gain on bargain purcha.
The consideration transferred reflects the amount paid by the parent for its share of the equity of the subsidiary.
The first effect then on the pre-acquisition entry is that the equity eliminated is only the parent’s share.
The cond effect is that if there is a gain on bargain purcha recognid the amount recognid is bad on the parent’s share of the equity of the subsidiary.
Exerci 25.4 Consolidation worksheet entries, multiple years, partial goodwill
method
THIS QUESTION IS ALTERED AS FOLLOWS:
头痛的英语
•FOR SHANTOU LTD ASSUME THAT THE FAIR VALUES OF ASSETS EQUAL THE CARRYING AMOUNTS SHOWN AT 1 JULY 2006
•ASSUME NO LAND HAS BEEN SOLD AND NO FAIR VALUE ADJUSTMENTS OR TRANSFERS ARE NECESSARY ON CONSOLIDATION
NANCHONG LTD – SHANTOU LTD
75%
Nanchong Ltd Shantou Ltd
Nanchong Ltd 75%
NCI 25%
Acquisition analysis
1 July 2006
Net fair value of identifiable asts
and liabilities of Shantou Ltd = ($80 000 + $20 000 + $40 000) (equity)
000
= $140
内邱Net fair value acquired = 75% x $140 000
000
= $105
750
Consideration
transferred = $125
山西太行山大峡谷Goodwill of parent = $20 750
A. Consolidation Journal Entries - 1 July 2006
1. Pre-acquisition entries
Share capital Dr 60 000
(1/7/06) Dr 30
000
earnings
Retained
000
General
办事处人员rerve Dr 15
750
Goodwill Dr 20
Shares in Shantou Ltd Cr 125 750
2. NCI share of equity at 1 July 2006
Share capital Dr 20 000
000
(1/7/06) Dr 10
earnings
Retained
000
rerve Dr 5
General
高清头像男000 NCI Cr 35
Entries - 30 June 2007
Journal
B. Consolidation
1. Pre-acquisition entry
Share capital Dr 60 000
000
Retained
(1/7/06) Dr 30
earnings
000
艾草的作用
General
rerve Dr 15
750
Goodwill Dr 20
Shares in Shantou Ltd Cr 125 750
2. NCI share of equity at 1 July 2006
Share capital Dr 20 000
000
(1/7/06) Dr 10
Retained
earnings
rerve Dr 5
000
General
000 NCI Cr 35
3. NCI share of equity: 1 July 2006 - 30 June 2007
NCI share of profit Dr 2 500
NCI Cr 2
500 (25% x $10 000)
rerve – gains Dr 500
Ast
revaluation
NCI Cr 500 (25% x $2 000)
C. Consolidation Journal Entries - 30 June 2008
1. Pre-acquisition entries
Share capital Dr 60 000
Retained earnings (1/7/07) Dr 30 000
000
rerve Dr 15
General
750
Goodwill Dr 20
Shares in Shantou Ltd Cr 125 750
2. NCI share of equity at 1 July 2006
Share capital Dr 20 000
000
(1/7/07) Dr 10
Retained
earnings
rerve Dr 5
000
General
000 NCI Cr 35
3. NCI share of equity: 1 July 2006 - 30 June 2007
Retained earnings (1/7/07) Dr 2 500
NCI Cr 2
500 (RE: 25% x $10 000)
Ast revaluation rerve (1/7/07) Dr 500
NCI Cr 500 (25% x $2 000)
4. NCI share of equity: 1 July 2007 - 30 June 2008
NCI share of profit Dr 5 750
750 NCI Cr 5 (25% x $23 000)
Ast revaluation rerve – gains Dr 1 250
NCI Cr 1
250 (25% x $5 000)
D. Consolidation Journal entries - 30 June 2009
1. Pre-acquisition entries
Share capital Dr 60 000
000
(1/7/08) Dr 30
Retained
earnings
rerve Dr 15完美盗贼
000
General
卡巴斯基杀毒
750
Goodwill Dr 20
Shares in Shantou Ltd Cr 125 750
2. NCI share of equity at 1 July 2006
Share capital Dr 20 000
000
Retained
(1/7/08) Dr 10
earnings
000
General
rerve Dr 5
000 NCI Cr 35
3. NCI share of equity: 1 July 2006 - 30 June 2008
Retained earnings (1/7/08) Dr 8 250
250 NCI Cr 8 25% x ($10 000 + $23 000)
Ast revaluation rerve (1/7/08) Dr 1 750
NCI Cr 1 750 25% x ($2 000+ $5 000)
4. NCI share of equity: 1 July 2008 - 30 June 2009
NCI Dr 1 500
NCI share of profit/loss Cr 1 500 25% x (6 000 loss)
Ast revaluation rerve – gains Dr 1 750
NCI Cr 1 750 25% x ($7 000)
