Deck 5: Non-Controlling Interest

Question 1

The shareholders' interest in a subsidiary that is termed a 'non-controlling interest' derives its name because,in comparison to the interest held be the shareholders of the parent entity,the non-controlling interest:

A) has less equity in the subsidiary.
B) has less voting power in the subsidiary.
C) has less equity and less voting power in the subsidiary.
D) none of the above.

Answer 1

D

Question 2

In the preparation of consolidated financial statements,the measurement of a non-controlling interest in the shareholders' equity of a subsidiary at the reporting date may be affected by:

A) management fees charged to the subsidiary by the parent entity.
B) unrealised profits arising from sales of inventories in the previous period by the subsidiary to another subsidiary in the same group.
C) consolidation adjustments made against the retained earnings of the subsidiary at the end of the previous period.
D) none of the above.

Answer 2

D

Question 3

Where the full goodwill on acquisition is recognised in the consolidated financial statements,any impairment loss will be allocated between parent interest and NCI on the same basis as profit or loss.

Answer 3

True

Question 4

Company A owns 40% of Company B and this ownership is deemed to represent control.The non-controlling interest in B is:

A) 40%.
B) 60%.
C) 100%.
D) no non-controlling interest.

Question 5

In preparing a consolidated financial report,the parent entity consolidates:

A) the financial statements of all entities over which it has the power to exercise control.
B) the financial statements of only those entities over which it has the power to control and in which it holds more than 50% of the voting shares.
C) the financial statements of only those entities in which it holds more than 50% of the ordinary issued capital; as a result, it necessarily has the power to exercise control.
D) none of the above.

Question 6

The consolidation technique of NCI allocation is based on the proposition that non-controlling shareholders have an ownership interest in group equity.

Question 7

If A owns 80% of B and B owns 75% of C,A's ownership interest in B and C is characterised as direct.

Question 8

The measurement of the NCI allocation will be based on the subsidiary company's equity account balances.

Question 9

Which of the following statements is correct?

A) The non-controlling interest cannot have the majority of the equity in a subsidiary since it would not then be a non-controlling interest.
B) The non-controlling interest cannot have the majority of voting power in a subsidiary since a majority would give that interest the power to control a subsidiary.
C) The non-controlling interest may have the majority of the equity and a majority of the voting power in a subsidiary but still remain a non-controlling interest.
D) None of the above.

Question 10

Under full consolidation,only the income,expenses,assets,liabilities and equity of wholly owned subsidiaries are included in the consolidated financial statements.

Question 11

Under the entity concept of consolidation,the NCI is recognised as a liability.

Question 12

The ownership interests in a group which includes partly owned subsidiaries consist of:

A) the parent entity shareholders.
B) the 'outside' subsidiary entity shareholders.
C) both the parent entity and the 'outside' subsidiary entity shareholders.
D) none of the above.

Question 13

The fair value method of measuring NCI includes an amount representing the non-controlling shareholder's interest in goodwill.

Question 14

P Ltd purchased 80% of the issued ordinary shares of S Ltd.S Ltd capital structure is: Ordinary shares-200 000 fully paid shares x $1
Preference shares-50 000 fully paid shares x $1
Preference shares have the same rights as ordinary shares.
The NCI in S Ltd is:

A) 20%.
B) 16%.
C) 36%.
D) none of the above.

Question 15

Outline how NCI will be disclosed in the consolidated statement of financial position,
statement of comprehensive income and statement of changes in equity.

Question 16

Non-controlling interest at date of acquisition must be measured using:

A) the fair value method.
B) the proportionate interest goodwill method.
C) either A or B.
D) none of the above.

Question 17

Is the proprietary concept of consolidation consistent with the proportional consolidation method?

Question 18

Consistent with the entity concept,full consolidation requires that:

A) the parent ownership proportion of the subsidiary income, expenses, assets, liabilities and equity are included in the consolidated financial statements.
B) the non-controlling ownership interests are included in the consolidated financial statements.
C) the full amount of income, expenses, assets, liabilities and equity are included in the consolidated financial statements.
D) none of the above.

Question 19

Accounting Standard AASB 3 Business Combinations allows the choice of measuring NCI using either the fair value method or the proportionate interest method.

Question 20

Why does AASB 3 allow a choice in the measurement of NCI at the date of acquisition?

Question 21

When an investment in a subsidiary is impaired,any impairment losses will be:

A) apportioned between PI and NCI.
B) borne by the PI.
C) Ignored.
D) none of the above.

Question 22

The shareholders of the parent entity in a group are entitled to:

A) total profits of all group members.
B) parent entity interest in consolidated group profit.
C) non-controlling interest in consolidated group profit.
D) none of the above.

Question 23

A subsidiary's recorded profits and retained earnings must be adjusted for unrealised profits prior to calculation of NCI allocation.The adjustments apply to:

A) upstream transactions.
B) downstream transactions.
C) both upstream and downstream transactions.
D) none of the above.

Question 24

Unrealised intragroup profit in opening inventory of a parent company is:

A) added to subsidiary profit in calculating NCI share of profit.
B) subtracted from subsidiary profit in calculating NCI share of profit.
C) ignored in calculating NCI share of profit.
D) none of the above.

Question 25

The effect of all intragroup transactions must be adjusted in calculating the NCI share of subsidiary profits.

Question 26

Under current accounting standards,it is not possible to record a negative NCI in consolidated financial statements.

Question 27

Where the shareholder's equity of a subsidiary is negative:

A) the NCI will be included as part of the parent interests.
B) the NCI will be shown as a separate amount in the consolidated accounts.
C) the NCI is ignored for consolidation purposes.
D) none of the above.

Question 28

In the calculation of NCI,share of profit consolidation adjusting entries that do not change group profit will:

A) be adjusted if they affect the subsidiary's reported profit.
B) be adjusted if they affect the parent entity's reported profit.
C) not be adjusted.
D) none of the above.

Question 29

The non-controlling interest share of a subsidiary's retained earnings will be calculated as a percentage of:

A) opening balance of retained earnings
B) profit for the period
C) dividend and other appropriations
D) the sum of all the above

Question 30

The disclosure of the non-controlling interest proportion of each equity balance in the consolidated financial statements provides useful information on:

A) dividend payment capacity.
B) business activity results.
C) segment activity results.
D) all the above.

Question 31

The parent interest (PI)in equity will be calculated as follows:

A) consolidated equity less non-controlling interest.
B) parent equity plus PI share of subsidiary equity.
C) parent equity plus non-controlling interest.
D) none of the above.

Question 32

How is the fair value of the shares representing an NCI calculated in the absence of an active market for the company's shares?

Question 33

P Ltd acquired 80% of S Ltd for a consideration of $500 000.At the date of acquisition,the following information is available: $\begin{array}{l}\text { S Ltd issued capital } &\$350,000\\\text { Retained earnings } &\$ 160,000 \\\text { Fair value of land }& \$ 200,000\\\text { (carrying amount } \$ 100000 \text { ) }\\\text { Fair value of } \mathrm{NCl}&\$150,000\\\text { Tax rate } 30 \%\end{array}$

-Using the proportionate interest goodwill method,goodwill on acquisition is:

A) $92 000.
B) $12 000.
C) $36 000.
D) none of the above.

Question 34

Preference shares of a subsidiary not owned by the parent company will be included as part of the NCI.

Question 35

P Ltd acquired 80% of S Ltd for a consideration of $500 000.At the date of acquisition,the following information is available: $\begin{array}{l}\text { S Ltd issued capital } &\$350,000\\\text { Retained earnings } &\$ 160,000 \\\text { Fair value of land }& \$ 200,000\\\text { (carrying amount } \$ 100000 \text { ) }\\\text { Fair value of } \mathrm{NCl}&\$150,000\\\text { Tax rate } 30 \%\end{array}$

- Under the fair value (100% of goodwill)method used in Question 14,the NCI in goodwill is:

A) $34 000.
B) $104 000.
C) $150 000.
D) none of the above.

Question 36

Discuss the effect of intragroup transactions on the calculation of the NCI share of subsidiary profits and retained earnings.

Question 37

P Ltd acquired 80% of S Ltd for a consideration of $500 000.At the date of acquisition,the following information is available: $\begin{array}{l}\text { S Ltd issued capital } &\$350,000\\\text { Retained earnings } &\$ 160,000 \\\text { Fair value of land }& \$ 200,000\\\text { (carrying amount } \$ 100000 \text { ) }\\\text { Fair value of } \mathrm{NCl}&\$150,000\\\text { Tax rate } 30 \%\end{array}$

- Using the fair value (100% goodwill)method,the goodwill on acquisition is:

A) $140 000.
B) $186 000.
C) $70 000.
D) none of the above.