8. Consolidated Financial Statements Pt 3

Question 1

What is NCI? (Non-Controlling Interest)

Answer 1

The equity in a subsidiary not attributable, directly or indirectly, to a parent

Question 2

What are the two possible interested owners in a subsidiary?

Answer 2

In a subsidiary that is not wholly owned by the parent there are two ownership interests, namely the parent and the non-controlling interest (NCI).

Question 3

How is the NCI share of equity calculated?

Answer 3

As a share of the consolidated equity of the group, which requires any intragroup transactions that affect the equity of the subsidiary to be taken into consideration.

Question 4

Is the NCI entitled to a share of the equity of the subsidiary?

Answer 4

No, because its ownership interest is in the group, not the subsidiary.

Question 5

What is the NCI classified as?

Answer 5

A contributor of equity to the group.

Question 6

What does the NCI consist of?

Answer 6

The NCI consists of the accumulation of all the interests in the subsidiary other than the parent.

Question 7

What does the AASB 3 provide for the NCI?

Answer 7

AASB 3 provides two alternative methods for calculating the NCI at acquisition date.

Question 8

How are the parent’s share and the NCI share get distinguished?

Answer 8

It is necessary to distinguish between the parent’s share and the NCI share of equity in the consolidated financial statements, extra columns are added in the consolidation work- sheet to divide the group equity into the NCI share and the parent’s share.

Question 9

Are the adjustments for intragroup transactions are the same whether the subsidiary is wholly
owned or whether there is an NCI in the subsidiary?

Answer 9

Yes, the exception is dividends where the

adjustment is based on the flow within the group.

Question 10

Under the partial growth method how is the NCI measured?

Answer 10

As a proportion of the net fair value
of the identifiable net assets of the subsidiary at acquisition date, and only the parent’s share of
goodwill is recognised in the pre-acquisition entries.

Question 11

Under the full goodwill method how is the NCI measured?

Answer 11

At fair value at acquisition date, and goodwill is recognised both in the business combination valuation entries and in the pre-acquisition entries.

Question 12

Is the NCI is entitled to a share of consolidated equity?

Answer 12

Yes

Question 13

What does changes in equity in the current period include?

Answer 13

Profit/(loss) earned, movements in other items of recognised income and expense, transfers to/from reserves and dividends paid/declared.

Question 14

T or F
The entry to reflect the NCI share of equity at acquisition date never changes, as any changes in equity are reflected in the year in which changes are made.

Answer 14

True

Question 15

What is in the columns of the NCI worksheet?

Answer 15

Entries are passed to reflect the NCI share of equity, the calculation being based on the three parts of total equity.

Question 16

How is the NCI share of equity calculated?

Answer 16

The equity of the subsidiary at the end of the reporting period is divided into three parts, namely, the equity at acquisition date, the equity between acquisition date and the beginning of the current period, and the changes in equity in the current period.

Question 17

Since the NCI is entitled to a share of consolidated equity what is necessary?

Answer 17

It is necessary to adjust for the effects of intragroup transactions in calculating the NCI share of equity.

Question 18

Is the NCI affected by intragroup transfers for services and interest?

Answer 18

No, because income/loss is assumed to be immediately realised.

Question 19

In adjusting for intragroup transactions is it necessary to determine the flow of the transaction?

Answer 19

Yes, — parent to subsidiary or subsidiary to parent — in order to determine whether an NCI adjustment is required.

Question 20

Is the NCI share of equity is affected by the realisation of profit on intragroup transactions?

Answer 20

Yes

Question 21

T or F
Since the NCI is calculated in relation to subsidiary equity, not all intragroup transactions affect the calculation of the NCI, only those where the equity of the subsidiary is affected.

Answer 21

True

Question 22

When are gains on bargain purchases realised?

Answer 22

Any gain on bargain purchase is recognised in the pre-acquisition entry.

Question 23

Is the NCI is unaffected by the existence of any gain on bargain purchase?

Answer 23

Yes

Question 24

Does the pre-acquisition entry adjust for the parent’s share of pre-acquisition equity only?

Answer 24

Yes

Question 25

What is DNCI? (Direct non-controlling interest)

Answer 25

An NCI that holds shares directly in a subsidiary

Question 26

What is INCI? (Indirect non-controlling interest)

Answer 26

An NCI that has an interest in a subsidiary as a result of having an interest in the parent of that subsidiary

Question 27

Can an NCI be direct or indirect?

Answer 27

Yes

Question 28

What is a sequential acquisition?

Answer 28

Where a parent acquires its shares in a subsidiary before or on the same date that the subsidiary acquires shares in its subsidiary

Question 29

What is a non-sequential acquisition?

Answer 29

Where a parent acquires its shares in a subsidiary after that subsidiary has acquired shares in its subsidiary

Question 30

Where can an INCI exist?

Answer 30

In an entity only where, in a multiple subsidiary structure, there is a DNCI in the immediate parent of that entity.

Question 31

Is the calculation of DNCI share and INCI share different?

Answer 31

Yes

Question 32

T or F
In calculating the NCI share of equity where dividends are paid/payable within the group, adjustments may be necessary to ensure double-counting does not occur.

Answer 32

True

Question 33

Where adjustments are made for intragroup transactions, the existence of both DNCI and INCI must be taken into account?

Answer 33

Yes

Question 34

What are one of the differences between DNCI and INCI?

Answer 34

The DNCI receives a share of both pre- and post-acquisition equity of the subsidiary whereas the INCI receives a share of post-acquisition equity only.

Question 35

T or F?
In non-sequential acquisitions, one of the assets of the acquired subsidiary for which the carrying amount may differ from fair value is its investments in its subsidiaries.

Answer 35

True

Question 36

Do the investments in subsidiaries have to be adjusted to fair value?

Answer 36

Yes, using business combination valuation entries in the consolidation worksheet, with subsequent effects on pre-acquisition entries.

Question 37

When do reciprocal shareholdings exist?

Answer 37

When a parent and a subsidiary hold shares in each other or subsidiaries in a group hold shares in each other.

Question 38

What does the timing of the acquisitions affect?

Answer 38

The calculation of the NCI share of equity. The INCI receives a share of post-acquisition equity only