Deck 14: Consolidation: Non-Controlling Interests

Question 1

Brooks Ltd paid $680 000 for 80% of the shares of Samba Ltd on 1 July 2011.All identifiable assets and liabilities of Samba Ltd were recorded at fair value.The NCI in Samba Ltd was considered to have a fair value of $168 000.At the date of acquisition the equity of Samba Ltd was: $$\begin{array} { l c } &\$\\\text { Share capital } & 400~000 \\\text { General reserve } & 240~000 \\\text { Retained earnings } & 180~000\end{array}$$ Calculate the goodwill attributable to the NCI.

A)$4 000
B)$140 000
C)$24 000
D)$28 000

Answer 1

$4 000

Question 2

Using the consideration paid by the parent company to measure the fair value of the NCI is probably an unrealistic measure because:

A)the parent may have obtained the shares in the subsidiary company at a substantial discount to the market,which in turn may affect the fair value of the NCI
B)the subsidiary's share price may not be quoted on a securities exchange
C)both the parent and the subsidiary's share price may not be quoted
D)all of the above

Answer 2

D

Question 3

Brooks Ltd paid $680 000 for 80% of the shares of Samba Ltd on 1 July 2011.All identifiable assets and liabilities of Samba Ltd were recorded at fair value.The NCI in Samba Ltd was considered to have a fair value of $168 000.At the date of acquisition the equity of Samba Ltd was: $$\begin{array} { l c } &\$\\\text { Share capital } & 400~000 \\\text { General reserve } & 240~000 \\\text { Retained earnings } & 180~000\end{array}$$ What is the total amount of goodwill?

A)$24 000
B)$140 000
C)$4 000
D)$28 000

Answer 3

$4 000

Question 4

In order that the consolidated financial statements present financial information about the group as that of a single economic entity,which of the following steps are taken:

A)non- controlling interests in the net assets of consolidated subsidiaries are identified separately from the parent shareholders' equity in them
B)non- controlling interests in the profit or loss of consolidated subsidiaries for the reporting period are identified
C)the carrying amount of the parent's investment in each subsidiary and the parent's portion of equity of each subsidiary are eliminated
D)all of the above

Question 5

Explain the concept of a non- controlling interest.

Question 6

Identify the steps required by AASB 127 in preparing consolidated financial statements.

Question 7

Explain the difference between the full goodwill and partial goodwill methods.

Question 8

If P Ltd owns 70% of S Ltd,the direct non- controlling interest is:

A)70%
B)0%
C)100%
D)30%

Question 9

Identify the two major types of intragroup transactions and explain whether these types of transactions will affect the calculation of the NCI.

Question 10

Which of the following statements is incorrect?

A)a parent can never have control of a subsidiary with less than 50% ownership of the subsidiary
B)a parent may have control of a subsidiary with less than 50% ownership of the subsidiary
C)the non- controlling interest in a subsidiary is the group of shareholders who own shares that the parent company does not own
D)the portion of the equity of a subsidiary not owned by a parent is known as the non- controlling interest

Question 11

The full goodwill method is in accordance with which concept of consolidation?

A)proprietary concept
B)entity concept
C)equity concept
D)none of the above

Question 12

Which of the following statements is correct?

A)adjustments to a share of profits of the subsidiary for intragroup services transactions are necessary when calculating the NCI
B)intragroup items that involve only the statement of comprehensive income,such as interest revenue and expense or management fees income and expense,will never directly involve an outside party
C)any unrealised profits or losses in the subsidiary's accounts,as a result of intragroup transactions,are considered to be profits/losses from a group perspective
D)intragroup items that involve only the statement of comprehensive income,such as interest revenue and expense or management fees income and expense,will always eventually involve an outside party

Question 13

Brooks Ltd paid $680 000 for 80% of the shares of Samba Ltd on 1 July 2011.All identifiable assets and liabilities of Samba Ltd were recorded at fair value.The NCI in Samba Ltd was considered to have a fair value of $168 000.At the date of acquisition the equity of Samba Ltd was: $$\begin{array} { l c } &\$\\\text { Share capital } & 400~000 \\\text { General reserve } & 240~000 \\\text { Retained earnings } & 180~000\end{array}$$ Calculate the goodwill of Brooks Ltd.

A)$24 000
B)$4 000
C)$28 000
D)$140 000

Question 14

A subsidiary company sells a depreciable asset to its parent at a profit after tax of $5 000.The parent depreciates the asset at 20% per annum upon transfer.in the 5th year after the transfer,the unrealised profit from the transfer is:

A)$500
B)$2 000
C)$1 000
D)$0

Question 15

The method whereby no goodwill is allocated to the NCI is referred to as the:

A)partial goodwill method
B)equity goodwill method
C)parent goodwill method
D)full goodwill method

Question 16

Peter Ltd owns 80% of Lauren Ltd.For the year ending 30 June 2011,Lauren Ltd's operating profit after tax is $10 000 which includes unrealised profit on a sale of inventory from Lauren Ltd to Peter Ltd of $2 450 after tax.The NCI share of Lauren Ltd's profit for the year is:

A)$1 510
B)$2 000
C)$2 490
D)none of the above

Question 17

In relation to the economic entity,the NCI is best described as a/an:

A)asset
B)liability
C)contributor of equity
D)none of the above

Question 18

On 1 July 2009,Dalgleish Ltd acquired 60% of the issued shares of Gairdner Ltd for $36 000 when the shareholders' equity of Gairdner Ltd was: $$\begin{array} { l c } &\$\\\text { Share capital } & 36~000 \\\text { General reserve } & 8~000 \\\text { Retained earnings } & 12~000\end{array}$$ -At the date of acquisition,all identifiable net assets of Gairdner Ltd were recorded at fair value.
-A non- current asset owned by Gairdner Ltd with a carrying amount of $1 000 was sold to Dalgleish Ltd for $2 000 on 1 July 2009.Dalgleish Ltd applies a depreciation rate of 20% per annum from the date of transfer of the asset.
-For the year ended 30 June 2011,the operating profit after tax of Gairdner Ltd was $3 600.The tax rate is 30%.
The NCI share of Gairdner Ltd's operating profit after tax for the year ended 30 June 2011 is:

A)$1384
B)$1496
C)$1216
D)$1440

Question 19

The equity in a subsidiary not attributable,directly or indirectly,to a parent is defined in AASB 127 as the:

A)non- controlling interest
B)equity interest
C)subsidiary interest
D)controlling interest