Question 1

Describe the two options in measuring the non-controlling interest.

Accepted Answer

In financial accounting, when a parent company owns a majority stake in a subsidiary but not 100% of its equity, the portion of the subsidiary that is not owned by the parent is referred to as the non-controlling interest (NCI), also known as minority interest. There are two primary methods for measuring non-controlling interest in the consolidated financial statements:

1. **Fair Value Method**:
Under the fair value method, the non-controlling interest is measured at its proportionate share of the acquiree's identifiable net assets at fair value at the acquisition date. This method involves valuing the non-controlling interest as if a market participant would buy it, which means that the value of the non-controlling interest reflects the full amount that a market participant would pay for the current ownership level. This includes the non-controlling interest's share of any goodwill that arises from the acquisition. The fair value method is more commonly used and is required under International Financial Reporting Standards (IFRS) as per IFRS 3 "Business Combinations".

2. **Proportionate Share Method** (also known as the Book Value Method):
Under the proportionate share or book value method, the non-controlling interest is measured at its proportionate share of the acquiree's identifiable net assets at their carrying amounts (book values) without any adjustments to fair value. This method does not include the non-controlling interest's share of goodwill that might have been recognized if the entire subsidiary had been acquired. This method was allowed under previous accounting standards but is less common under current standards.

The choice of method can have a significant impact on the reported assets, liabilities, and equity of the consolidated entity. The fair value method tends to result in a higher reported value for non-controlling interest on the balance sheet, as it includes the non-controlling interest's share of the subsidiary's goodwill. The proportionate share method, on the other hand, results in a lower reported value for non-controlling interest, as it excludes goodwill.

It's important to note that accounting standards and practices can change over time, and the choice of method should be in accordance with the relevant accounting framework being applied, such as IFRS or Generally Accepted Accounting Principles (GAAP) in the United States.

Question 2

Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following situations,involving eliminations as part of the consolidation process,would not have implications for the calculation of non-controlling interest?

Accepted Answer

A)  the sale of a non-current asset by the subsidiary to the parent 
B)  the payment of a management fee by the subsidiary to the parent 
C)  the sale of inventory by the parent to the subsidiary 
D)  the payment of a management fee by the subsidiary to the parent and the sale of inventory by the parent to the subsidiary 
A)  the sale of a non-current asset by the subsidiary to the parent 
B)  the payment of a management fee by the subsidiary to the parent 
C)  the sale of inventory by the parent to the subsidiary 
D)  the payment of a management fee by the subsidiary to the parent and the sale of inventory by the parent to the subsidiary D

Question 4

Parties who are not part of the ownership of the parent entity in a group and who own capital in a company that is a controlled entity in that group are called outside financing interests.

Accepted Answer

A) True 
 B)False

Question 5

Acquirer Limited purchased 75 per cent of Subby Limited for $45 000.The fair value of identifiable assets was $95 000,and the fair value of liabilities and contingent liabilities amounted to $47 000.According to AASB 10,what would be the amount of 'goodwill allocated to non-controlling interests of Subby Limited'?

Accepted Answer

A)  $3000 
B)  $9000 
C)  $12 000 
D)  ($3000) 
A)  $3000 
B)  $9000 
C)  $12 000 
D)  ($3000)

Question 6

Discuss how share capital and reserves are determined at the date of the acquisition and post-acquisition changes in share capital and reserves.

Accepted Answer

Share capital and reserves are determine

Question 7

On 1 July 2012,Han Solo Ltd acquired 80 per cent of the share capital of Chewbacca Ltd for $500 000,which represented the fair value of the consideration paid,when the share capital and reserves of Chewbacca Ltd were:
$$\begin{array} { | l | r | } 
\hline \text { Share capital } & \$ 300000 \
\hline \text { Revaluation surplus } & \$ 100000 \
\hline \text { Retained earnings } & \underline{\$ 100000} \
\hline &\underline{ \$ 500000 }\
\hline
\end{array}$$
All assets of Chewbacca Ltd were recorded at fair value at acquisition date,except for machinery that had a fair value $20 000 greater than its carrying amount.The cost of the equipment was $40 000 and it had accumulated depreciation of $10 000.The tax rate is 30 per cent.
Under the full goodwill method,what is the amount of fair value adjustment and goodwill,respectively,on 1 July 2012 for non-controlling interests in Chewbacca Ltd?

Accepted Answer

A)  $ 2800; zero 
B)  $11 200; zero 
C)  $ 2 800; $22 200 
D)  $11 200; $88 800 
A)  $ 2800; zero 
B)  $11 200; zero 
C)  $ 2 800; $22 200 
D)  $11 200; $88 800

Question 8

In calculating the proportion of a subsidiary's profit that is attributable to owners who are not part of the group,all adjustments to the group's profit should be treated as affecting the calculation for the outside owners.

Accepted Answer

A) True 
 B)False

Question 9

AASB 10 Consolidated and Separate Financial Statements prescribes that non-controlling interests be presented in the consolidated statement of financial position as a liability.

Accepted Answer

A) True 
 B)False

Question 10

The disclosure of non-controlling interests in the (a)comprehensive income statement; and (b)statement of financial position is as follows:

Accepted Answer

A)  (a) profit or loss attributable to non-controlling interest in the notes; (b) non-controlling interest in equity as a separate line item 
B)  (a) profit or loss attributable to non-controlling interest on the face; (b) non-controlling interest in equity as part of share capital 
C)  (a) profit or loss attributable to non-controlling interest in the notes; (b) non-controlling interest in equity as part of share capital 
D)  (a) profit or loss attributable to non-controlling interest on the face; (b) non-controlling interest in equity as a separate line item 
A)  (a) profit or loss attributable to non-controlling interest in the notes; (b) non-controlling interest in equity as a separate line item 
B)  (a) profit or loss attributable to non-controlling interest on the face; (b) non-controlling interest in equity as part of share capital 
C)  (a) profit or loss attributable to non-controlling interest in the notes; (b) non-controlling interest in equity as part of share capital 
D)  (a) profit or loss attributable to non-controlling interest on the face; (b) non-controlling interest in equity as a separate line item

Question 11

On 1 July 2012,Han Solo Ltd acquired 80 per cent of the share capital of Chewbacca Ltd for $400 000,which represented the fair value of the consideration paid,when the share capital and reserves of Chewbacca Ltd were:
$$\begin{array} { | l | r | } 
\hline \text { Share capital } & \$ 300000 \
\hline \text { Revaluation surplus } & \$ 100000 \
\hline \text { Retained earnings } & \underline{\$ 100000} \
\hline &\underline{ \$ 500000 }\
\hline
\end{array}$$
All assets of Chewbacca Ltd were recorded at fair value at acquisition date,except for equipment that had a fair value $20 000 greater than its carrying amount.The cost of the equipment was $40 000 and it had accumulated depreciation of $10 000.The tax rate is 30 per cent.
Using the partial goodwill method,what is the amount of fair value adjustment and goodwill,respectively,on 1 July 2012 for non-controlling interests in Chewbacca Ltd?

Accepted Answer

A)  $ 2800; zero 
B)  $11 200; 22 200 
C)  $ 2 800; $22 200 
D)  $11 200; $88 800 
A)  $ 2800; zero 
B)  $11 200; 22 200 
C)  $ 2 800; $22 200 
D)  $11 200; $88 800

Question 12

Which of the following statements is incorrect with regards to non-controlling interests in subsidiaries?

Accepted Answer

A)  A non-controlling interest is defined as equity in a subsidiary not attributable, directly or indirectly, to a parent. 
B)  Under the entity concept, if subsidiaries are partly owned by the parent entity, both the parent entity and the non-controlling interests will have an ownership interest in the subsidiary's profits, dividend payments, and share capital and reserves. 
C)  Under the entity concept, non-controlling interests will be shown as a liability. 
D)  Under the proprietary concept, non-controlling interests will be shown as a liability. 
A)  A non-controlling interest is defined as equity in a subsidiary not attributable, directly or indirectly, to a parent. 
B)  Under the entity concept, if subsidiaries are partly owned by the parent entity, both the parent entity and the non-controlling interests will have an ownership interest in the subsidiary's profits, dividend payments, and share capital and reserves. 
C)  Under the entity concept, non-controlling interests will be shown as a liability. 
D)  Under the proprietary concept, non-controlling interests will be shown as a liability.

Question 13

Green Ltd purchased 90 per cent of the issued capital and in the process gained control over Maroon Ltd on 1 July 2015.The fair value of the net assets of Maroon Ltd at purchase was represented by:
$$\begin{array} { | l | r | } 
\hline \text { Share capital } & \$ 3220000 \
\hline \text { Retained earnings } & 740000 \
\hline & \$ 3960000 \
\hline
\end{array}$$
Green Ltd paid cash consideration of $3 700 000 for Maroon Ltd.During the period ended 30 June 2017,Maroon Ltd paid management fees of $100 000 to Green Ltd and Maroon had an operating profit of $405 000.Maroon Ltd declared a dividend of $98 000 during the period.Green purchased inventory from Maroon during the period ended 30 June 2017 for $100 000.The inventory cost Maroon Ltd $85 000 and at the end of the period Green had 35 per cent of that inventory still on hand.Maroon's opening retained earnings for the period ended 30 June 2017 was $810 000.Goodwill has been determined to have been impaired by $13 600.Companies in the group use perpetual inventory systems and accrue dividends when they are declared by subsidiaries.There were no other inter-company transactions.Ignore tax implications.
For the period ended 30 June 2017,what consolidation journal entries are required and what is the outside equity interest?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 14

In preparing consolidated financial statements non-controlling interests are allocated on a 'line-by-line' basis.

Accepted Answer

A) True 
 B)False

Question 15

In adjusting for intragroup transactions prior to calculating non-controlling interests,describe the treatment of:
 (a)intragroup service and interest payments; and (b)intragroup sales of inventory and non-current assets.

Accepted Answer

(a) Intragroup service and interest paym

Question 16

Where the parent entity holds less than 100 per cent interest in a subsidiary,AASB 10 requires the remaining shareholders' interests in what items to be disclosed?

Accepted Answer

A)  the subsidiary's share capital and reserves 
B)  the subsidiary's profit or loss 
C)  the subsidiary's current and non-current assets 
D)  the subsidiary's share capital and reserves and the subsidiary's profit or loss 
A)  the subsidiary's share capital and reserves 
B)  the subsidiary's profit or loss 
C)  the subsidiary's current and non-current assets 
D)  the subsidiary's share capital and reserves and the subsidiary's profit or loss

Question 17

Calculating goodwill for a subsidiary that has a non-controlling interest involves:

Accepted Answer

A)  Taking the parent entity's share of the fair value of the identifiable net assets of the subsidiary and deducting it from the fair value of the consideration paid. 
B)  Dividing the fair value of the consideration paid for the subsidiary by the percentage ownership of the parent entity and deducting the fair value of the identifiable net assets of the subsidiary from that amount. 
C)  Taking the book value of equity of the subsidiary and deducting the fair value of the consideration paid for the subsidiary. 
D)  Dividing the fair value of the identifiable net assets of the subsidiary by the percentage ownership of the parent entity and deducting this amount from the fair value of the consideration paid. 
A)  Taking the parent entity's share of the fair value of the identifiable net assets of the subsidiary and deducting it from the fair value of the consideration paid. 
B)  Dividing the fair value of the consideration paid for the subsidiary by the percentage ownership of the parent entity and deducting the fair value of the identifiable net assets of the subsidiary from that amount. 
C)  Taking the book value of equity of the subsidiary and deducting the fair value of the consideration paid for the subsidiary. 
D)  Dividing the fair value of the identifiable net assets of the subsidiary by the percentage ownership of the parent entity and deducting this amount from the fair value of the consideration paid.

Question 18

On 1 July 2015 Harry Ltd purchased 80 per cent of the issued share capital of Wills Ltd and has control of Wills.The fair value of the net assets of Wills Ltd on that date was represented as follows:
$$\begin{array} { | l | r | } 
\hline \text { Share capital } & \$ 2000000 \
\hline \text { Retained earnings } & 500000 \
\hline & \$ 2500000 \
\hline
\end{array}$$
Harry Ltd paid cash consideration of $2 500 000 for Wills.Wills Ltd made an operating profit of $350 000,there were no intragroup transactions during the period ended 30 June 2016.Goodwill had been determined to have been impaired during the year by $25 000.What consolidation journal entries are required for the period and what is the non-controlling interest in equity as at 30 June 2016?

Accepted Answer

A) 
$$\begin{array}{l}
{ \text { Consolidation journal entries: } }\
\begin{array} { | c | l | r | r |} 
\hline \mathrm { Dr } & \text { Share capital } & 1600000 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 400000 & \
\hline \mathrm { Dr } & \text { Goodwill } & 500000 & \
\hline \mathrm { Cr } & \text { Investment in Wills Ltd } & & 2500000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Impairment loss } & 25000 & \
\hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 25000 \
\hline & & & \
\hline
\end{array}\
\text { Non-controlling interest: }\
\begin{array} { | l | r | r | } 
\hline \text { Operating profit } & 70000 & \
\hline \text { Opening retained earnings } & 100000 & \
\hline \text { Share capital } & \underline{400000} & \
\hline \text { Total } & \underline{570000} & \
\hline
\end{array}
\end{array}$$ 
B) 
$\text { Consolidation journal entries: } \
\begin{array}{|c|l|r|r|}
\hline \mathrm{Dr} & \text { Share capital } & 2000000 & \
\hline \mathrm{Dr} & \text { Retained earnings } & 500000 & \
\hline \mathrm{Cr} & \text { Investment in Wills Ltd } & & 2500000 \
\hline & & & \
\hline
\end{array}$
$\begin{array}{l}
\text { Non-controlling interest: }\
\begin{array}{|l|r|r|}
\hline \text { Retained earnings } & 100000 & \
\hline \text { Share capital } & \underline{400000} & \
\hline \text { Total } & \underline{500000} & \
\hline
\end{array}
\end{array}$ 
C) 
$$\begin{array}{l}
{ \text { Consolidation journal entries: } }\
\begin{array} { | c | l | r | r |} 
\hline \mathrm { Dr } & \text { Share capital } & 1600000 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 400000 & \
\hline \mathrm { Dr } & \text { Goodwill } & 500000 & \
\hline \mathrm { Cr } & \text { Investment in Wills Ltd } & & 2500000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Impairment loss } & 25000 & \
\hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 25000 \
\hline & & & \
\hline
\end{array}\
\text { Non-controlling interest: }\
\begin{array} { | l | r | r | } 
\hline \text { Operating profit } & 65000 & \
\hline \text { Opening retained earnings } & 100000 & \
\hline \text { Share capital } & \underline { 400000 } & \
\hline \text { Total } & \underline { 565000 } & \
\hline
\end{array}
\end{array}$$ 
D) 
$$\begin{array}{l}
{ \text { Consolidation journal entries: } } \
\begin{array} { | c | l | r | r |} 
\hline \mathrm { Dr } & \text { Share capital } & 1600000 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 400000 & \
\hline \mathrm { Dr } & \text { Goodwill } & 500000 & \
\hline \mathrm { Cr } & \text { Investment in Wills Ltd } & & 2500000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Impairment loss } & 25000 & \
\hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 25000 \
\hline & & & \
\hline
\end{array}\
\text { Non-controlling interest: }\
\begin{array} { | l | r | r | } 
\hline \text { Operating profit } & 68750 & \
\hline \text { Opening retained earnings } & 100000 & \
\hline \text { Goodwill } & 125000 & \
\hline \text { Share capital } & \underline { 400000 } & \
\hline \text { Total } & \underline { 693750} & \
\hline
\end{array}
\end{array}$$ 
A) 
$$\begin{array}{l}
{ \text { Consolidation journal entries: } }\
\begin{array} { | c | l | r | r |} 
\hline \mathrm { Dr } & \text { Share capital } & 1600000 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 400000 & \
\hline \mathrm { Dr } & \text { Goodwill } & 500000 & \
\hline \mathrm { Cr } & \text { Investment in Wills Ltd } & & 2500000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Impairment loss } & 25000 & \
\hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 25000 \
\hline & & & \
\hline
\end{array}\
\text { Non-controlling interest: }\
\begin{array} { | l | r | r | } 
\hline \text { Operating profit } & 70000 & \
\hline \text { Opening retained earnings } & 100000 & \
\hline \text { Share capital } & \underline{400000} & \
\hline \text { Total } & \underline{570000} & \
\hline
\end{array}
\end{array}$$ 
B) 
$\text { Consolidation journal entries: } \
\begin{array}{|c|l|r|r|}
\hline \mathrm{Dr} & \text { Share capital } & 2000000 & \
\hline \mathrm{Dr} & \text { Retained earnings } & 500000 & \
\hline \mathrm{Cr} & \text { Investment in Wills Ltd } & & 2500000 \
\hline & & & \
\hline
\end{array}$
$\begin{array}{l}
\text { Non-controlling interest: }\
\begin{array}{|l|r|r|}
\hline \text { Retained earnings } & 100000 & \
\hline \text { Share capital } & \underline{400000} & \
\hline \text { Total } & \underline{500000} & \
\hline
\end{array}
\end{array}$ 
C) 
$$\begin{array}{l}
{ \text { Consolidation journal entries: } }\
\begin{array} { | c | l | r | r |} 
\hline \mathrm { Dr } & \text { Share capital } & 1600000 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 400000 & \
\hline \mathrm { Dr } & \text { Goodwill } & 500000 & \
\hline \mathrm { Cr } & \text { Investment in Wills Ltd } & & 2500000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Impairment loss } & 25000 & \
\hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 25000 \
\hline & & & \
\hline
\end{array}\
\text { Non-controlling interest: }\
\begin{array} { | l | r | r | } 
\hline \text { Operating profit } & 65000 & \
\hline \text { Opening retained earnings } & 100000 & \
\hline \text { Share capital } & \underline { 400000 } & \
\hline \text { Total } & \underline { 565000 } & \
\hline
\end{array}
\end{array}$$ 
D) 
$$\begin{array}{l}
{ \text { Consolidation journal entries: } } \
\begin{array} { | c | l | r | r |} 
\hline \mathrm { Dr } & \text { Share capital } & 1600000 & \
\hline \mathrm { Dr } & \text { Retained earnings } & 400000 & \
\hline \mathrm { Dr } & \text { Goodwill } & 500000 & \
\hline \mathrm { Cr } & \text { Investment in Wills Ltd } & & 2500000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Impairment loss } & 25000 & \
\hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 25000 \
\hline & & & \
\hline
\end{array}\
\text { Non-controlling interest: }\
\begin{array} { | l | r | r | } 
\hline \text { Operating profit } & 68750 & \
\hline \text { Opening retained earnings } & 100000 & \
\hline \text { Goodwill } & 125000 & \
\hline \text { Share capital } & \underline { 400000 } & \
\hline \text { Total } & \underline { 693750} & \
\hline
\end{array}
\end{array}$$

Question 19

Which of the following statements is incorrect with regards to non-controlling interests in subsidiaries?

Accepted Answer

A)  A non-controlling interest is defined as a liability in a subsidiary not attributable, directly or indirectly, to a parent. 
B)  Under the entity concept, if subsidiaries are partly owned by the parent entity, both the parent entity and the non-controlling interests will have an ownership interest in the subsidiary's profits, dividend payments, and share capital and reserves. 
C)  Under the entity concept, non-controlling interests will be shown as equity. 
D)  Under the proprietary concept, non-controlling interests will be shown as equity. 
A)  A non-controlling interest is defined as a liability in a subsidiary not attributable, directly or indirectly, to a parent. 
B)  Under the entity concept, if subsidiaries are partly owned by the parent entity, both the parent entity and the non-controlling interests will have an ownership interest in the subsidiary's profits, dividend payments, and share capital and reserves. 
C)  Under the entity concept, non-controlling interests will be shown as equity. 
D)  Under the proprietary concept, non-controlling interests will be shown as equity.

Question 20

Non-controlling interests are 'identified' and eliminated as part of the consolidation process.

Accepted Answer

A) True 
 B)False

Exam 29: Further Consolidation Issues II: Accounting for Non-Controlling Interests

Describe the two options in measuring the non-controlling interest.

Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Which of the following situations,involving eliminations as part of the consolidation process,would not have implications for the calculation of non-controlling interest?

Parties who are not part of the ownership of the parent entity in a group and who own capital in a company that is a controlled entity in that group are called outside financing interests.

Discuss how share capital and reserves are determined at the date of the acquisition and post-acquisition changes in share capital and reserves.

In calculating the proportion of a subsidiary's profit that is attributable to owners who are not part of the group,all adjustments to the group's profit should be treated as affecting the calculation for the outside owners.

AASB 10 Consolidated and Separate Financial Statements prescribes that non-controlling interests be presented in the consolidated statement of financial position as a liability.

The disclosure of non-controlling interests in the (a)comprehensive income statement; and (b)statement of financial position is as follows:

Which of the following statements is incorrect with regards to non-controlling interests in subsidiaries?

In preparing consolidated financial statements non-controlling interests are allocated on a 'line-by-line' basis.

In adjusting for intragroup transactions prior to calculating non-controlling interests,describe the treatment of: (a)intragroup service and interest payments; and (b)intragroup sales of inventory and non-current assets.

Where the parent entity holds less than 100 per cent interest in a subsidiary,AASB 10 requires the remaining shareholders' interests in what items to be disclosed?

Calculating goodwill for a subsidiary that has a non-controlling interest involves:

Which of the following statements is incorrect with regards to non-controlling interests in subsidiaries?

Non-controlling interests are 'identified' and eliminated as part of the consolidation process.

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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