Question 1

Only dividends payable to the parent entity are eliminated against dividends receivable in the accounts of the parent entity.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following is not one of the stages used to determine non-controlling interest?

Accepted Answer

A)  the non-controlling interest in the current period's profit or loss
B)  the non-controlling interest in share capital at the date of acquisition of the subsidiary by the parent entity
C)  the non-controlling interest in the goodwill at acquisition
D)  the non-controlling interest in reserves at the date of acquisition of the subsidiary by the parent entity C

Question 3

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: $$\begin{array} { | l | r | } 
\hline \text { Share capital } & \$ 300000 \
\hline \text { Revaluation surplus } & \$ 100000 \
\hline \text { Retained earnings } & \$ 100000 \
\hline & \$ 500000 \
\hline
\end{array}$$ 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  C

Question 4

Using full goodwill method,share of goodwill attributable to the non-controlling interests is recognised in the statement of financial position as part of non-controlling interest in equity.

Accepted Answer

A) True 
 B)False

Question 5

Differentiate 'full goodwill method' from the 'partial goodwill method' in the presence of non-controlling interests in a subsidiary.Discuss the implications of permitting the use of either method in business combinations.

Accepted Answer

The answer of Differentiate 'full goodwill method' from the 'partial...

Question 6

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

Accepted Answer

A)  The requirement to eliminate the effects of intragroup transactions does not hold when there are non-controlling interests.
B)  The non-controlling interest's share in the dividends paid or proposed by the subsidiary is not eliminated on consolidation.
C)  The non-controlling interest's share of the profits of the subsidiary is calculated after adjustments to eliminate income and expenses of the subsidiary that are realised from the economic entity's perspective.
D)  Management fees paid in an intragroup transaction are considered realised when determining non-controlling interests in a subsidiary.

Question 7

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 8

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: $$\begin{array} { | l | r | } 
\hline \text { Share capital } & \$ 300000 \
\hline \text { Revaluation surplus } & \$ 100000 \
\hline \text { Retained earnings } & \$ 100000 \
\hline & \$ 500000 \
\hline
\end{array}$$ 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

Question 9

IAS 1 Presentation of Financial Statements requires an entity to disclose separately in the statement of comprehensive income,profit or loss for the period attributable to non-controlling interests and owners of the parent.

Accepted Answer

A) True 
 B)False

Question 10

When a subsidiary company that has a non-controlling interest (NCI)declares a dividend,the treatment in the consolidated statement of financial position of dividends not paid is:

Accepted Answer

A)  The non-controlling interest portion of the dividend owing should be eliminated along with the parent entity's share, leaving a zero balance in dividends payable.
B)  The NCI's portion should be deducted from the non-controlling interest's share in equity.There should be no dividend amounts remaining in the consolidated statement of financial position, but the amount owed to the NCI should be disclosed separately.
C)  The amount owing to NCI as a dividend payable should be included in the consolidated statement of financial position as a current liability.
D)  The amount of dividends payable to both the parent entity and the NCI will be reflected in the consolidated statement of financial position.

Question 11

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.

Question 12

Finger Ltd purchased 75 per cent of the issued capital and in the process gained control over Nail Ltd on 1 July 2013.The fair value of the net assets of Nail Ltd at purchase was represented by: $$\begin{array} { | l | r | } 
\text { Share capital } & \$ 3760000 \
\hline \text { Retained earnings } & 1320000 \
\hline & \$ 5080000 \
\hline
\end{array}$$ Finger Ltd paid cash consideration of $4 000 000 for Nail Ltd.During the period ended 30 June 2015,Nail Ltd paid management fees of $540 000 to Finger Ltd and Nails had an operating profit of $980 000.Nails' opening retained earnings at the beginning of the period were $1 460 000.At the end of the period Nail Ltd declared a dividend of $90 000.There were no other inter-company transactions.Goodwill was determined to have been impaired by $19 000 during the period.Companies in the group accrue dividends when they are declared by subsidiaries. For the period ended 30 June 2015,what consolidation journal entries are required and what is the non-controlling interest?

Accepted Answer

A)     Consolidation journal entries: Dr Share capital 2820000Dr Retained earnings 990000Cr Investment in Wills Ltd 3810000Dr Management fee revenue 540000Cr Management fee expense 540000Dr Dividend payable 90000Cr Dividend receivable 90000 Non-controlling interest:  Operating profit 245000 Opening retained earnings 365000 Share capital 940000 Total 1550000\begin{array}{l}\begin{array} { | c | l | r | r | } \hline { 	ext { Consolidation journal entries: } } & & \\hline \mathrm { Dr } & 	ext { Share capital } & 2820000 & \\hline \mathrm { Dr } & 	ext { Retained earnings } & 990000 & \\hline \mathrm { Cr } & 	ext { Investment in Wills Ltd } & & 3810000 \\hline & & & \\hline \mathrm { Dr } & 	ext { Management fee revenue } & 540000 & \\hline \mathrm { Cr } & 	ext { Management fee expense } & & 540000 \\hline & & & \\hline \mathrm { Dr } & 	ext { Dividend payable } & 90000 & \\hline \mathrm { Cr } & 	ext { Dividend receivable } & & 90000 \\hline & & & \\hline\end{array}\	ext { Non-controlling interest: }\\begin{array} { | l | r | l | } \hline 	ext { Operating profit } & 245000 &\quad\quad\quad \\hline 	ext { Opening retained earnings } & 365000 & \\hline 	ext { Share capital } & 940000 & \\hline 	ext { Total } & 1550000 & \\hline\end{array}\end{array} Consolidation journal entries: DrDrCrDrCrDrCr​ Share capital  Retained earnings  Investment in Wills Ltd  Management fee revenue  Management fee expense  Dividend payable  Dividend receivable ​282000099000054000090000​381000054000090000​​ Non-controlling interest:  Operating profit  Opening retained earnings  Share capital  Total ​2450003650009400001550000​​​​ 
B)     Consolidation journal entries: 	ext { Consolidation journal entries: } Consolidation journal entries:   Dr Share capital 3760000Dr Retained earnings 1320000Cr Non-controlling interest 1080000Cr Investment in Wills Ltd 4000000Dr Impairment loss 19000Cr Accumulated impairment loss 19000Dr Management fee revenue 540000Cr Management fee expense 540000Dr Dividend payable 67500Cr Dividend receivable 67500\begin{array}{|l|l|r|l|}\hline \mathrm{Dr} & 	ext { Share capital } & 3760000 & \\hline \mathrm{Dr} & 	ext { Retained earnings } & 1320000 & \\hline \mathrm{Cr} & 	ext { Non-controlling interest } & & 1080000 \\hline \mathrm{Cr} & 	ext { Investment in Wills Ltd } & & 4000000\\hline\\hline \mathrm{Dr} & 	ext { Impairment loss } & 19000 & \\hline \mathrm{Cr} & 	ext { Accumulated impairment loss } & & 19000 \\hline & & & \\hline \mathrm{Dr} & 	ext { Management fee revenue } & 540000 & \\hline \mathrm{Cr} & 	ext { Management fee expense } & & 540000\\hline\\hline \mathrm{Dr} & 	ext { Dividend payable } & 67500 & \\hline \mathrm{Cr} & 	ext { Dividend receivable } & & 67500 \\hline\end{array}DrDrCrCrDrCrDrCrDrCr​ Share capital  Retained earnings  Non-controlling interest  Investment in Wills Ltd  Impairment loss  Accumulated impairment loss  Management fee revenue  Management fee expense  Dividend payable  Dividend receivable ​376000013200001900054000067500​108000040000001900054000067500​​   Non-controlling interest 	ext { Non-controlling interest } Non-controlling interest     Operating profit 245000 Dividend 22500‾ Total 267500\begin{array}{|l|r|r|}\hline	ext { Operating profit } & 245000&\quad\quad\quad \\hline 	ext { Dividend } & \underline{22500} \\hline 	ext { Total } & 267500\\hline\end{array} Operating profit  Dividend  Total ​24500022500​267500​​ 
C)     Consolidation journal entries: 	ext { Consolidation journal entries: } Consolidation journal entries:   Dr Share capital 2820000Dr Retained earnings 990000Dr Goodwill 190000Cr Investment in Wills Ltd 4000000Dr Impairment loss 19000Cr Accumulated impairment loss 19000Dr Management fee revenue 540000Cr Management fee expense 540000Dr Dividend payable 67500Cr Dividend declared 67500Dr Dividend revenue 67500Cr Dividend receivable 67500\begin{array}{|l|l|r|l|}\hline\mathrm{Dr} & 	ext { Share capital } & 2820000 & \\hline \mathrm{Dr} & 	ext { Retained earnings } & 990000 & \\hline \mathrm{Dr} & 	ext { Goodwill } & 190000 & \\hline \mathrm{Cr} & 	ext { Investment in Wills Ltd } & & 4000000\\hline\\hline \mathrm{Dr} & 	ext { Impairment loss } & 19000 & \\hline \mathrm{Cr} & 	ext { Accumulated impairment loss } & & 19000 \\hline & & & \\hline \mathrm{Dr} & 	ext { Management fee revenue } & 540000 & \\hline \mathrm{Cr} & 	ext { Management fee expense } & & 540000\\hline\\hline \mathrm{Dr} & 	ext { Dividend payable } & 67500 & \\hline \mathrm{Cr} & 	ext { Dividend declared } & & 67500 \\hline & & & \\hline \mathrm{Dr} & 	ext { Dividend revenue } & 67500 & \\hline \mathrm{Cr} & 	ext { Dividend receivable } & & 67500 \\hline\end{array}DrDrDrCrDrCrDrCrDrCrDrCr​ Share capital  Retained earnings  Goodwill  Investment in Wills Ltd  Impairment loss  Accumulated impairment loss  Management fee revenue  Management fee expense  Dividend payable  Dividend declared  Dividend revenue  Dividend receivable ​2820000990000190000190005400006750067500​4000000190005400006750067500​​   Non-controlling interest: 	ext { Non-controlling interest: } Non-controlling interest:    Operating profit 245000 Opening retained earnings 365000 Dividend (22500)  Share capital 940‾000 Total 1527500\begin{array}{|l|r|r|}\hline 	ext { Operating profit } & 245000 &\quad\quad\quad\\hline 	ext { Opening retained earnings } & 365000 \\hline 	ext { Dividend } & (22500)  \\hline 	ext { Share capital } & \underline{940} 000 \\hline 	ext { Total } & 1527500 \\hline\end{array} Operating profit  Opening retained earnings  Dividend  Share capital  Total ​245000365000(22500) 940​0001527500​​ 
D)     Consolidation journal entries: 	ext { Consolidation journal entries: } Consolidation journal entries:   Dr Share capital 2820000Dr Retained earnings 1320000Cr Non-controlling interest 140000Cr Investment in Wills Ltd 4000000Dr Impairment loss 14000Cr Non-controlling interest 14000Dr Management fee revenue 540000Cr Management fee expense 540000Dr Dividend payable 67500Cr Dividend receivable 67500Dr Dividend revenue 67500Cr Dividend declared 67500\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & 	ext { Share capital } & 2820000 & \\hline \mathrm{Dr} & 	ext { Retained earnings } & 1320000 & \\hline \mathrm{Cr} & 	ext { Non-controlling interest } & & 140000 \\hline \mathrm{Cr} & 	ext { Investment in Wills Ltd } & & 4000000 \\hline\\hline \mathrm{Dr} & 	ext { Impairment loss } & 14000 & \\hline \mathrm{Cr} & 	ext { Non-controlling interest } & & 14000 \\hline & & & \\hline \mathrm{Dr} & 	ext { Management fee revenue } & 540000 & \\hline \mathrm{Cr} & 	ext { Management fee expense } & & 540000 \\hline\\hline \mathrm{Dr} & 	ext { Dividend payable } & 67500 & \\hline \mathrm{Cr} & 	ext { Dividend receivable } & & 67500 \\hline & & & \\hline \mathrm{Dr} & 	ext { Dividend revenue } & 67500 & \\hline \mathrm{Cr} & 	ext { Dividend declared } & & 67500 \\hline\end{array}DrDrCrCrDrCrDrCrDrCrDrCr​ Share capital  Retained earnings  Non-controlling interest  Investment in Wills Ltd  Impairment loss  Non-controlling interest  Management fee revenue  Management fee expense  Dividend payable  Dividend receivable  Dividend revenue  Dividend declared ​28200001320000140005400006750067500​1400004000000140005400006750067500​​   Non-controlling interest 	ext { Non-controlling interest } Non-controlling interest    Operating profit 357500 Opening retained earnings 342500 Share capital 940000 Total 1640000\begin{array}{|l|r|l|}\hline 	ext { Operating profit } & 357500 &\quad\quad\quad \\hline 	ext { Opening retained earnings } & 342500 & \\hline 	ext { Share capital } & 940000 & \\hline 	ext { Total } & 1640000 &\\hline\end{array} Operating profit  Opening retained earnings  Share capital  Total ​3575003425009400001640000​​​

Question 13

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

Accepted Answer

The answer of Describe the two options in measuring the...

Question 14

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.

Question 15

Groucho Ltd purchased 60 per cent of the issued capital and in the process gained control over Marx Ltd on 1 July 2014.The fair value of the net assets of Marx Ltd at purchase was represented by: $$\begin{array} { | l | r | } 
\text { Share capital } & \$ 2140000 \
\hline \text { Retained earnings } & 840000 \
\hline & \$ 2980000 \
\hline
\end{array}$$ Groucho Ltd paid cash consideration of $1 850 000 for Marx Ltd.During the period ended 30 June 2015,Marx Ltd paid management fees of $200 000 to Groucho Ltd and Marx had an operating profit of $530 000.Marx Ltd paid a dividend of $100 000 during the period.Groucho purchased inventory from Marx during the period for $80 000.The inventory cost Marx Ltd $56 000 and at the end of the period Groucho had 50 per cent of that inventory still on hand.Goodwill has been determined to have been impaired by $6200 during the period.Companies in the group use perpetual inventory systems and accrue dividends when they are declared by subsidiaries.Ignore tax implications. For the period ended 30 June 2015,what consolidation journal entries are required and what is the non-controlling interest?

Accepted Answer

A)     Consolidation journal entries: 	ext { Consolidation journal entries: } Consolidation journal entries:   Dr Share capital 1284000Dr Retained earnings 504000Dr Goodwill 62000Cr Investment in Marx Ltd 1850000Dr Impairment loss 6200Cr Accumulated impairment loss 6200Dr Management fee revenue 120000Cr Management fee expense 120000Dr Dividend revenue 60000Cr Dividend paid 60000Dr Sales revenue 48000Cr Cost of goods sold 48000Dr Cost of goods sold 7200Cr Inventory 7200\begin{array}{|l|l|r|l|}\hline \mathrm{Dr} & 	ext { Share capital } & 1284000 & \\hline \mathrm{Dr} & 	ext { Retained earnings } & 504000 & \\hline \mathrm{Dr} & 	ext { Goodwill } & 62000 & \\hline \mathrm{Cr} & 	ext { Investment in Marx Ltd } & & 1850000 \\hline\\hline \mathrm{Dr} & 	ext { Impairment loss } & 6200 & \\hline \mathrm{Cr} & 	ext { Accumulated impairment loss } & & 6200 \\hline & & & \\hline \mathrm{Dr} & 	ext { Management fee revenue } & 120000 & \\hline \mathrm{Cr} & 	ext { Management fee expense } & & 120000\\hline\\hline \mathrm{Dr} & 	ext { Dividend revenue } & 60000 & \\hline \mathrm{Cr} & 	ext { Dividend paid } & & 60000 \\hline & & & \\hline \mathrm{Dr} & 	ext { Sales revenue } & 48000 & \\hline \mathrm{Cr} & 	ext { Cost of goods sold } & & 48000 \\hline\\hline \mathrm{Dr} & 	ext { Cost of goods sold } & 7200 & \\hline \mathrm{Cr} & 	ext { Inventory } & & 7200 \\hline\end{array}DrDrDrCrDrCrDrCrDrCrDrCrDrCr​ Share capital  Retained earnings  Goodwill  Investment in Marx Ltd  Impairment loss  Accumulated impairment loss  Management fee revenue  Management fee expense  Dividend revenue  Dividend paid  Sales revenue  Cost of goods sold  Cost of goods sold  Inventory ​128400050400062000620012000060000480007200​1850000620012000060000480007200​​   Non-controlling interest: 	ext { Non-controlling interest: } Non-controlling interest:    Operating profit 292000 Opening retained earnings 336000 Dividends (40000)  Share capital 856000 Total 1444000\begin{array}{|l|r|l|}\hline 	ext { Operating profit } & 292000& \quad\quad\quad\\hline 	ext { Opening retained earnings } & 336000 \\hline 	ext { Dividends } & (40000)  \\hline 	ext { Share capital } & 856000 \\hline 	ext { Total } & 1444000 \\hline\end{array} Operating profit  Opening retained earnings  Dividends  Share capital  Total ​292000336000(40000) 8560001444000​​ 
B)     Consolidation journal entries: 	ext { Consolidation journal entries: } Consolidation journal entries:   Dr Share capital 2140000Dr Retained earnings 840000Cr Non-controlling interest 1130000Cr Investment in Marx Ltd 1850000Dr Management fee revenue 120000Cr Management fee expense 120000Dr Dividend revenue 60000Cr Dividend paid 60000Dr Sales revenue 48000Cr Cost of goods sold 48000Dr Cost of goods sold 7200Cr Inventory 7200\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & 	ext { Share capital } & 2140000 & \\hline \mathrm{Dr} & 	ext { Retained earnings } & 840000 & \\hline \mathrm{Cr} & 	ext { Non-controlling interest } & & 1130000 \\hline \mathrm{Cr} & 	ext { Investment in Marx Ltd } & & 1850000 \\hline & &  & \\hline \mathrm{Dr} & 	ext { Management fee revenue } &120000 & \\hline \mathrm{Cr} & 	ext { Management fee expense } & &120000  \\hline\\hline \mathrm{Dr} & 	ext { Dividend revenue } & 60000 & \\hline \mathrm{Cr} & 	ext { Dividend paid } & & 60000 \\hline & & & \\hline \mathrm{Dr} & 	ext { Sales revenue } & 48000 & \\hline \mathrm{Cr} & 	ext { Cost of goods sold } & & 48000 \\hline\\hline \mathrm{Dr} & 	ext { Cost of goods sold } & 7200 & \\hline \mathrm{Cr} & 	ext { Inventory } & & 7200 \\hline\end{array}DrDrCrCrDrCrDrCrDrCrDrCr​ Share capital  Retained earnings  Non-controlling interest  Investment in Marx Ltd  Management fee revenue  Management fee expense  Dividend revenue  Dividend paid  Sales revenue  Cost of goods sold  Cost of goods sold  Inventory ​214000084000012000060000480007200​1130000185000012000060000480007200​​   Non-controlling interest: 	ext { Non-controlling interest: } Non-controlling interest:    Operating profit 212000 Opening retained earnings 336000 Dividends (4000)  Total 1475200\begin{array}{|l|r|r|}\hline	ext { Operating profit } & 212000&\quad\quad\quad \\hline 	ext { Opening retained earnings } & 336000 \\hline 	ext { Dividends } & (4000)  \\hline 	ext { Total } & 1475200\\hline\end{array} Operating profit  Opening retained earnings  Dividends  Total ​212000336000(4000) 1475200​​ 
C)     Consolidation journal entries: Dr Share capital 1284000Dr Retained earnings 504000Cr Investment in Marx Ltd 1788000Dr Management fee revenue 120000Cr Management fee expense 120000Dr Dividend payable Cr Dividend receivable 6000060000Dr Cost of goods sold Cr Inventory 1200012000\begin{array}{l}\begin{array} { | c | l | r | r | } \hline 	ext { Consolidation journal entries: } & & \\hline \mathrm { Dr } & 	ext { Share capital } & 1284000 & \\hline \mathrm { Dr } & 	ext { Retained earnings } & 504000 & \\hline \mathrm { Cr } & 	ext { Investment in Marx Ltd } & & 1788000 \\hline & & & \\hline \mathrm { Dr } & 	ext { Management fee revenue } & 120000 & \\hline \mathrm { Cr } & 	ext { Management fee expense } & & 120000 \\hline \mathrm { Dr } & 	ext { Dividend payable } & & \\hline \mathrm { Cr } & 	ext { Dividend receivable } & 60000 & \\hline & & & 60000 \\hline \mathrm { Dr } & 	ext { Cost of goods sold } & & \\hline \mathrm { Cr } & 	ext { Inventory } & 12000 & \\hline & & & 12000 \\hline\end{array}\\end{array} Consolidation journal entries: DrDrCrDrCrDrCrDrCr​ Share capital  Retained earnings  Investment in Marx Ltd  Management fee revenue  Management fee expense  Dividend payable  Dividend receivable  Cost of goods sold  Inventory ​12840005040001200006000012000​17880001200006000012000​​​   Non-controlling interest:  Operating profit 207200 Opening retained earnings 340800 Dividends 40000 Share capital 856000 Total 1444000\begin{array}{l}	ext { Non-controlling interest: }\\begin{array} { | l | r | r | } \hline 	ext { Operating profit } & 207200 &\quad\quad\quad\quad \\hline 	ext { Opening retained earnings } & 340800 & \\hline 	ext { Dividends } & 40000 & \\hline 	ext { Share capital } & 856000 & \\hline 	ext { Total } & 1444000 & \\hline\end{array} \end{array} Non-controlling interest:  Operating profit  Opening retained earnings  Dividends  Share capital  Total ​207200340800400008560001444000​​​​ 
D)    Dr Share capital 1284000Dr Retained earnings 504000Dr Goodwill 62000Cr Investment in Marx Ltd 1850000Dr Impairment loss 6200Cr Accumulated impairment loss 6200Dr Management fee revenue Cr Management fee expense Dr Dividend revenue 60000Cr Dividend paid 60000Dr Sales revenue 80000Cr Cost of goods sold 80000Dr Cost of goods sold 12000Cr Inventory 12000\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & 	ext { Share capital } & 1284000 & \\hline \mathrm{Dr} & 	ext { Retained earnings } & 504000 & \\hline \mathrm{Dr} & 	ext { Goodwill } & 62000 & \\hline \mathrm{Cr} & 	ext { Investment in Marx Ltd } & & 1850000 \\hline & &  & \\hline \mathrm{Dr} & 	ext { Impairment loss } & 6200& \\hline \mathrm{Cr} & 	ext { Accumulated impairment loss } & & 6200\\hline & & & \\hline \mathrm{Dr} & 	ext { Management fee revenue } & & \\hline \mathrm{Cr} & 	ext { Management fee expense } & & \\hline & &  & \\hline \mathrm{Dr} & 	ext { Dividend revenue } &60000 &  \\hline \mathrm{Cr} & 	ext { Dividend paid } & &60000 \\hline & & & \\hline \mathrm{Dr} & 	ext { Sales revenue } &80000  &  \\hline \mathrm{Cr} & 	ext { Cost of goods sold } & &80000  \\hline & &  & \\hline \mathrm{Dr} & 	ext { Cost of goods sold } &12000 & \\hline \mathrm{Cr} & 	ext { Inventory } & &12000 \\hline\end{array}DrDrDrCrDrCrDrCrDrCrDrCrDrCr​ Share capital  Retained earnings  Goodwill  Investment in Marx Ltd  Impairment loss  Accumulated impairment loss  Management fee revenue  Management fee expense  Dividend revenue  Dividend paid  Sales revenue  Cost of goods sold  Cost of goods sold  Inventory ​1284000504000620006200600008000012000​18500006200600008000012000​​   Non-controlling interest:  Operating profit 207200 Opening retained earnings 336000 Dividends (40000)  Share capital 856000 Total 1359200\begin{array}{l}	ext { Non-controlling interest: }\\begin{array}{|l|r|r|}\hline 	ext { Operating profit } & 207200&\quad\quad\quad \\hline 	ext { Opening retained earnings } & 336000 \\hline 	ext { Dividends } & (40000)  \\hline 	ext { Share capital } & 856000 \\hline 	ext { Total } & 1359200\\hline\end{array}\end{array} Non-controlling interest:  Operating profit  Opening retained earnings  Dividends  Share capital  Total ​207200336000(40000) 8560001359200​​​

Question 16

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

Accepted Answer

A)  The requirement to eliminate the effects of intragroup transactions holds whether or not there are non-controlling interests.
B)  The non-controlling interest's share in the dividends paid or proposed by the subsidiary is eliminated on consolidation.
C)  The non-controlling interest's share of the profits of the subsidiary is calculated after adjustments to eliminate income and expenses of the subsidiary that are unrealised from the economic entity's perspective.
D)  Management fees paid in an intragroup transaction are considered realised when determining non-controlling interests in a subsidiary.

Question 17

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: $$\begin{array} { | l | r | } 
\text { Share capital } & \$ 3220000 \
\hline \text { Retained earnings } & 740000 \
\hline & \$ 3960000 \
\hline
\end{array}$$ 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)     Consolidation journal entries: 	ext { Consolidation journal entries: } Consolidation journal entries:   Dr Share capital 2898000Dr Retained earnings 666000Dr Goodwill 136000Cr Investment in Maroon Ltd 3700000Dr Impairment loss 13600Cr Accumulated impairment loss 13600Dr Management fee revenue 90000Cr Management fee expense 90000Dr Dividend revenue 88200Cr Dividend paid 88200Dr Sales revenue 90000Cr Cost of goods sold 90000Dr Cost of goods sold 4725Cr Inventory 4725\begin{array}{|l|l|r|l|}\hline \mathrm{Dr} & 	ext { Share capital } & 2898000 & \\hline \mathrm{Dr} & 	ext { Retained earnings } & 666000 & \\hline \mathrm{Dr} & 	ext { Goodwill } & 136000 & \\hline \mathrm{Cr} & 	ext { Investment in Maroon Ltd } && 3700000 \\hline\\hline \mathrm{Dr} & 	ext { Impairment loss } & 13600 & \\hline \mathrm{Cr} & 	ext { Accumulated impairment loss } & & 13600 \\hline & & & \\hline \mathrm{Dr} & 	ext { Management fee revenue } & 90000 & \\hline \mathrm{Cr} & 	ext { Management fee expense } & & 90000\\hline\\hline \mathrm{Dr} & 	ext { Dividend revenue } & 88200 & \\hline \mathrm{Cr} & 	ext { Dividend paid } & & 88200 \\hline & & & \\hline \mathrm{Dr} & 	ext { Sales revenue } & 90000 & \\hline \mathrm{Cr} & 	ext { Cost of goods sold } & & 90000 \\hline & & & \\hline \mathrm{Dr} & 	ext { Cost of goods sold } & 4725 & \\hline \mathrm{Cr} & 	ext { Inventory } & & 4725 \\hline\end{array}DrDrDrCrDrCrDrCrDrCrDrCrDrCr​ Share capital  Retained earnings  Goodwill  Investment in Maroon Ltd  Impairment loss  Accumulated impairment loss  Management fee revenue  Management fee expense  Dividend revenue  Dividend paid  Sales revenue  Cost of goods sold  Cost of goods sold  Inventory ​2898000666000136000136009000088200900004725​3700000136009000088200900004725​​   Non-controlling interest 	ext { Non-controlling interest } Non-controlling interest     Operating profit 40500 Opening retained earnings 81000 Dividends (9800)  Share capital 322000‾ Total 433700‾\begin{array}{|l|r|r|}\hline 	ext { Operating profit } & 40500&\quad\quad\quad \\hline 	ext { Opening retained earnings } & 81000 \\hline 	ext { Dividends } & (9800)  \\hline 	ext { Share capital } & \underline{322000} \\hline 	ext { Total } & \underline{433700} \\hline\end{array} Operating profit  Opening retained earnings  Dividends  Share capital  Total ​4050081000(9800) 322000​433700​​​ 
B)     Consolidation journal entries: 	ext { Consolidation journal entries: } Consolidation journal entries:   Dr Share capital 2898000Dr Retained earnings 666000Dr Goodwill 136000Cr Investment in Maroon Ltd 370000013600Dr Impairment loss 13600Cr Accumulated impairment loss 100000Dr Management fee revenue 100000Dr Dividend payable 88200Cr Dividend declared 8820088200Dr Dividend revenue 88200Cr Dividend receivable 100000Dr Sales revenue 100000Cr Cost of goods sold Dr Cost of goods sold 5250Cr Inventory 5250\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & 	ext { Share capital } & 2898000 & \\hline \mathrm{Dr} & 	ext { Retained earnings } & 666000 & \\hline \mathrm{Dr} & 	ext { Goodwill } & 136000 & \\hline \mathrm{Cr} & 	ext { Investment in Maroon Ltd } & & 3700000 \\hline & & 13600 & \\hline \mathrm{Dr} & 	ext { Impairment loss } & & 13600 \\hline \mathrm{Cr} & 	ext { Accumulated impairment loss } & & \\hline & & 100000 & \\hline \mathrm{Dr} & 	ext { Management fee revenue } & & 100000\\hline\\hline \mathrm{Dr} & 	ext { Dividend payable } & 88200 & \\hline \mathrm{Cr} & 	ext { Dividend declared } & & 88200 \\hline & & 88200 & \\hline \mathrm{Dr} & 	ext { Dividend revenue } & & 88200 \\hline \mathrm{Cr} & 	ext { Dividend receivable } & & \\hline & & 100000 & \\hline \mathrm{Dr} & 	ext { Sales revenue } & & 100000 \\hline \mathrm{Cr} & 	ext { Cost of goods sold } & & \\hline & & & \\hline \mathrm{Dr} & 	ext { Cost of goods sold } & 5250 \\hline \mathrm{Cr} & 	ext { Inventory } & & 5250 \\hline\end{array}DrDrDrCrDrCrDrDrCrDrCrDrCrDrCr​ Share capital  Retained earnings  Goodwill  Investment in Maroon Ltd  Impairment loss  Accumulated impairment loss  Management fee revenue  Dividend payable  Dividend declared  Dividend revenue  Dividend receivable  Sales revenue  Cost of goods sold  Cost of goods sold  Inventory ​28980006660001360001360010000088200882001000005250​37000001360010000088200882001000005250​​   Non-controlling interest: 	ext { Non-controlling interest: } Non-controlling interest:    Operating profit 39975 Opening retained earnings 81000 Dividends (9800)  Share capital 322000‾ Total 433175\begin{array}{|l|r|r|}\hline 	ext { Operating profit } & 39975 &\quad\quad\quad\\hline 	ext { Opening retained earnings } & 81000 \\hline 	ext { Dividends } & (9800)  \\hline 	ext { Share capital } & \underline{322000} \\hline 	ext { Total } & 433175 \\hline\end{array} Operating profit  Opening retained earnings  Dividends  Share capital  Total ​3997581000(9800) 322000​433175​​ 
C)     Consolidation journal entries:  	ext { Consolidation journal entries: }  Consolidation journal entries:   Dr Share capital 2898000Dr Retained earnings 666000Cr Investment in Maroon Ltd 3564000Dr Management fee expense 10000Cr Management fee revenue 10000Dr Dividend payable 88200Cr Dividend declared 88200Dr Dividend revenue 88200Cr Dividend receivable 88200Dr Sales revenue 90000Cr Cost of goods sold 90000 Non-controlling interest:  Operating profit 40500 Opening retained earnings 74000 Dividends (9800)  Share capital 322000 Total 426700\begin{array}{l}\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & 	ext { Share capital } & 2898000 & \\hline \mathrm { Dr } & 	ext { Retained earnings } & 666000 & \\hline \mathrm { Cr } & 	ext { Investment in Maroon Ltd } & & 3564000 \\hline & & & \\hline \mathrm { Dr } & 	ext { Management fee expense } & 10000 & \\hline \mathrm { Cr } & 	ext { Management fee revenue } & & 10000 \\hline & & & \\hline \mathrm { Dr } & 	ext { Dividend payable } & 88200 & \\hline \mathrm { Cr } & 	ext { Dividend declared } & & 88200 \\hline \mathrm { Dr } & 	ext { Dividend revenue } &88200  & \\hline \mathrm { Cr } & 	ext { Dividend receivable } & &88200  \\hline & & & \\hline \mathrm { Dr } & 	ext { Sales revenue } & 90000& \\hline \mathrm { Cr } & 	ext { Cost of goods sold } &  &90000 \\hline \end{array}\\	ext { Non-controlling interest: }\\begin{array} { | l | r | l | } \hline 	ext { Operating profit } & 40500 &\quad\quad\quad \\hline 	ext { Opening retained earnings } & 74000 & \\hline 	ext { Dividends } & ( 9800 )  & \\hline 	ext { Share capital } & 322000 & \\hline 	ext { Total } & 426700 & \\hline\end{array}\end{array}DrDrCrDrCrDrCrDrCrDrCr​ Share capital  Retained earnings  Investment in Maroon Ltd  Management fee expense  Management fee revenue  Dividend payable  Dividend declared  Dividend revenue  Dividend receivable  Sales revenue  Cost of goods sold ​289800066600010000882008820090000​356400010000882008820090000​​ Non-controlling interest:  Operating profit  Opening retained earnings  Dividends  Share capital  Total ​4050074000(9800) 322000426700​​​​ 
D)     Consolidation journal entries: Dr Share capital 3220000Dr Retained earnings 740000Cr Non-controlling interest 260000Cr Investment in Maroon Ltd 100000Dr Management fee revenue 100000Cr Management fee expense Dr Dividend payable 88200Cr Dividend declared 88200Dr Dividend revenue 88200Cr Dividend receivable 88200Dr Sales revenue 90000Cr Cost of goods sold 90000Dr Cost of goods sold 5250Cr Inventory 5250 Non-controlling interest:  Operating profit 50500 Opening retained earnings 74000 Dividends (9800)  Share capital 322000‾ Total 436700\begin{array}{|c|l|r|r|}\hline 	ext { Consolidation journal entries: } & & \\hline \mathrm{Dr} & 	ext { Share capital } & 3220000 & \\hline \mathrm{Dr} & 	ext { Retained earnings } & & 740000 \\hline \mathrm{Cr} & 	ext { Non-controlling interest } & & 260000 \\hline \mathrm{Cr} & 	ext { Investment in Maroon Ltd } & & \\hline & & 100000 & \\hline \mathrm{Dr} & 	ext { Management fee revenue } & & 100000 \\hline \mathrm{Cr} & 	ext { Management fee expense } & & \\hline\\hline \mathrm{Dr} & 	ext { Dividend payable } & 88200 & \\hline \mathrm{Cr} & 	ext { Dividend declared } & & 88200 \\hline & & & \\hline \mathrm{Dr} & 	ext { Dividend revenue } & 88200 & \\hline \mathrm{Cr} & 	ext { Dividend receivable } & & 88200 \\hline\\hline \mathrm{Dr} & 	ext { Sales revenue } & 90000 & \\hline \mathrm{Cr} & 	ext { Cost of goods sold } & & 90000 \\hline & & & \\hline \mathrm{Dr} & 	ext { Cost of goods sold } & 5250 & \\hline \mathrm{Cr} & 	ext { Inventory } & & 5250 \\hline\\hline	ext { Non-controlling interest: }\\hline 	ext { Operating profit } && 50500 \\hline 	ext { Opening retained earnings } && 74000 \\hline 	ext { Dividends } && (9800)  \\hline 	ext { Share capital } && \underline{322000} \\hline 	ext { Total } && 436700 \\hline\end{array} Consolidation journal entries: DrDrCrCrDrCrDrCrDrCrDrCrDrCr Non-controlling interest:  Operating profit  Opening retained earnings  Dividends  Share capital  Total ​ Share capital  Retained earnings  Non-controlling interest  Investment in Maroon Ltd  Management fee revenue  Management fee expense  Dividend payable  Dividend declared  Dividend revenue  Dividend receivable  Sales revenue  Cost of goods sold  Cost of goods sold  Inventory ​322000010000088200882009000052505050074000(9800) 322000​436700​7400002600001000008820088200900005250​​

Question 18

One of the steps in preparing consolidated financial statements is working out the amounts to be attributed to non-controlling interests to determine the amount to be eliminated in the consolidation process.

Accepted Answer

A) True 
 B)False

Question 19

IFRS 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 20

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)     Consolidation journal entries: Dr Share capital 1600000Dr Retained earnings 400000Dr Goodwill 500000Cr Investment in Wills Ltd 2500000Dr Impairment loss 25000Cr Accumulated impairment loss 25000 Non-controlling interest:  Operating profit 70000 Opening retained earnings 100000 Share capital 400000 Total 570000\begin{array}{l}\begin{array} { | l | l | r | r | } \hline  { 	ext { Consolidation journal entries: } } & & \\hline \mathrm { Dr } & 	ext { Share capital } & 1600000 & \\hline \mathrm { Dr } & 	ext { Retained earnings } & 400000 & \\hline \mathrm { Dr } & 	ext { Goodwill } & 500000 & \\hline \mathrm { Cr } & 	ext { Investment in Wills Ltd } & & 2500000 \\hline & & & \\hline \mathrm { Dr } & 	ext { Impairment loss } & 25000 & \\hline \mathrm { Cr } & 	ext { Accumulated impairment loss } & & 25000 \\hline & & & \\hline\end{array}\	ext { Non-controlling interest: }\\begin{array} { | l | r | r | } \hline 	ext { Operating profit } & 70000 & \quad\quad\\hline 	ext { Opening retained earnings } & 100000 & \\hline 	ext { Share capital } & 400000 & \\hline 	ext { Total } & 570000 & \\hline\end{array}\end{array} Consolidation journal entries: DrDrDrCrDrCr​ Share capital  Retained earnings  Goodwill  Investment in Wills Ltd  Impairment loss  Accumulated impairment loss ​160000040000050000025000​250000025000​​ Non-controlling interest:  Operating profit  Opening retained earnings  Share capital  Total ​70000100000400000570000​​​​ 
B)     Consolidation journal entries: Dr Share capital 2000000Dr Retained earnings 500000Cr Investment in Wills Ltd 2500000\begin{array}{|l|l|r|l|}\hline 	ext { Consolidation journal entries: } & & \\hline \mathrm{Dr} & 	ext { Share capital } & 2000000 & \\hline \mathrm{Dr} & 	ext { Retained earnings } & 500000 & \\hline \mathrm{Cr} & 	ext { Investment in Wills Ltd } & & 2500000 \\hline &\\hline\end{array} Consolidation journal entries: DrDrCr​ Share capital  Retained earnings  Investment in Wills Ltd ​2000000500000​2500000​​   Non-controlling interest:  Retained earnings 100000 Share capital 400000‾ Total 500000\begin{array}{|l|l|l|}\hline 	ext { Non-controlling interest: }&&\quad\quad\\hline 	ext { Retained earnings } & 100000 \\hline 	ext { Share capital } & \underline{400000} \\hline 	ext { Total } & 500000\\hline \end{array} Non-controlling interest:  Retained earnings  Share capital  Total ​100000400000​500000​​ 
C)     Consolidation journal entries: Dr Share capital 1600000Dr Retained earnings 400000Dr Goodwill 500000Cr Investment in Wills Ltd 2500000Dr Impairment loss 25000Cr Accumulated impairment loss 25000 Non-controlling interest:  Operating profit 65000 Opening retained earnings 100000 Share capital 400000 Total 565000‾\begin{array}{l}\begin{array} { | l | l | r | r | } \hline { 	ext { Consolidation journal entries: } } & & \\hline \mathrm { Dr } & 	ext { Share capital } & 1600000 & \\hline \mathrm { Dr } & 	ext { Retained earnings } & 400000 & \\hline \mathrm { Dr } & 	ext { Goodwill } & 500000 & \\hline \mathrm { Cr } & 	ext { Investment in Wills Ltd } & & 2500000 \\hline & & & \\hline \mathrm { Dr } & 	ext { Impairment loss } & 25000 & \\hline \mathrm { Cr } & 	ext { Accumulated impairment loss } & & 25000 \\hline & & & \\hline\end{array}\	ext { Non-controlling interest: }\\begin{array} { | l | r | l | } \hline 	ext { Operating profit } & 65000 &\quad\quad\quad \\hline 	ext { Opening retained earnings } & 100000 & \\hline 	ext { Share capital } & 400000 & \\hline 	ext { Total } & \underline { 565000 } & \\hline\end{array}\end{array} Consolidation journal entries: DrDrDrCrDrCr​ Share capital  Retained earnings  Goodwill  Investment in Wills Ltd  Impairment loss  Accumulated impairment loss ​160000040000050000025000​250000025000​​ Non-controlling interest:  Operating profit  Opening retained earnings  Share capital  Total ​65000100000400000565000​​​​​ 
D)     Consolidation journal entries: Dr Share capital 1600000Dr Retained earnings 400000Dr Goodwill 500000Cr Investment in Wills Ltd 2500000Dr Impairment loss 25000Cr Accumulated impairment loss 25000 Non-controlling interest:  Operating profit 68750 Opening retained earnings 100000 Goodwill 125000 Share capital 400000 Total 693750\begin{array}{l}\begin{array} { | c | l | r | r | } \hline  { 	ext { Consolidation journal entries: } } & & \\hline \mathrm { Dr } & 	ext { Share capital } & 1600000 & \\hline \mathrm { Dr } & 	ext { Retained earnings } & 400000 & \\hline \mathrm { Dr } & 	ext { Goodwill } & 500000 & \\hline \mathrm { Cr } & 	ext { Investment in Wills Ltd } & & 2500000 \\hline & & & \\hline \mathrm { Dr } & 	ext { Impairment loss } & 25000 & \\hline \mathrm { Cr } & 	ext { Accumulated impairment loss } & & 25000 \\hline & & & \\hline\end{array}\	ext { Non-controlling interest: }\\begin{array} { | l | r | r | } \hline 	ext { Operating profit } & 68750 &\quad\quad\quad \\hline 	ext { Opening retained earnings } & 100000 & \\hline 	ext { Goodwill } & 125000 & \\hline 	ext { Share capital } & 400000 & \\hline 	ext { Total } & 693750 & \\hline\end{array}\end{array} Consolidation journal entries: DrDrDrCrDrCr​ Share capital  Retained earnings  Goodwill  Investment in Wills Ltd  Impairment loss  Accumulated impairment loss ​160000040000050000025000​250000025000​​ Non-controlling interest:  Operating profit  Opening retained earnings  Goodwill  Share capital  Total ​68750100000125000400000693750​​​​

Exam 22: Further Consolidation Issues II: Accounting for Non-Controlling Interests

Only dividends payable to the parent entity are eliminated against dividends receivable in the accounts of the parent entity.

Which of the following is not one of the stages used to determine non-controlling interest?

Using full goodwill method,share of goodwill attributable to the non-controlling interests is recognised in the statement of financial position as part of non-controlling interest in equity.

Differentiate 'full goodwill method' from the 'partial goodwill method' in the presence of non-controlling interests in a subsidiary.Discuss the implications of permitting the use of either method in business combinations.

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

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.

IAS 1 Presentation of Financial Statements requires an entity to disclose separately in the statement of comprehensive income,profit or loss for the period attributable to non-controlling interests and owners of the parent.

When a subsidiary company that has a non-controlling interest (NCI) declares a dividend,the treatment in the consolidated statement of financial position of dividends not paid is:

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

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

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

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

One of the steps in preparing consolidated financial statements is working out the amounts to be attributed to non-controlling interests to determine the amount to be eliminated in the consolidation process.

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