Deck 29: Consolidation: Non-Controlling Interest

Question 1

On a consolidation worksheet, the non-controlling interest columns are used to:

A) adjust the amounts that have been recorded for intragroup sales.
B) record the amounts of the non-controlling investment in the parent.
C) adjust the amounts that have been recorded for intragroup services.
D) compile the amounts of non-controlling interest and parent share of particular line items.

Answer 1

D

Question 2

A non-controlling interest contributes to a consolidated group?

A) assets
B) profit
C) equity
D) liabilities

Answer 2

C

Question 3

Patrick Limited paid $11 000 for 80% of the shares in Rachel Limited. At the date of acquisition Rachel Limited had equity as follows: Share capital $9 000
Retained earnings $2 500
Other reserves $4 000
All of Rachel Limited's assets and liabilities were recorded at fair value. The fair value of identifiable net assets acquired by Patrick Limited amounted to:

A) $8 800
B) $10 000
C) $11 000
D) $12 500

Answer 3

B

Question 4

Non-controlling interest is entitled to a part of the equity of the:

A) parent entity.
B) subsidiary entity.
C) parent entity as reflected in the consolidated equity.
D) subsidiary entity as reflected in the consolidated equity.

Question 5

Which of the following statements is incorrect with regards to a consolidation worksheet in the presence of the non-controlling interest?

A) there is no NCI share extracted from the assets and liabilities section of the worksheet.
B) one extra column is added that includes the parent share of the individual equity accounts.
C) two extra columns are added to the worksheet to divide the consolidated equity into the NCI and parent share.
D) one extra column is added that includes the NCI share of the individual equity accounts.

Question 6

Ownership interests in a subsidiary entity that do not belong to the parent entity are known as:

A) private interests.
B) unowned interests.
C) proprietary interests.
D) non-controlling interests.

Question 7

AASB 10 Consolidated Financial Statements classifies non-controlling interest as:

A) a liability of the group.
B) part of the equity of the group.
C) a liability of the parent entity.
D) a liability.

Question 8

The following information is required to be disclosed for the non-controlling interest (NCI) except for:

A) the NCI share of consolidated equity.
B) the NCI share of consolidated profit before tax.
C) the NCI share of consolidated profit after tax.
D) the NCI share of consolidated comprehensive income.

Question 9

Disclosure of the non-controlling interest's share of consolidated equity is required in which of the following financial statements?

A) all of these financial statements.
B) consolidated statement of changes in equity.
C) consolidated statement of financial position.
D) consolidated statement of comprehensive income.

Question 10

In Bell Group's consolidation worksheet, the opening balance of retained earnings under 'Group' column shows a balance of $70 000. If there is a debit entry of $16 000 in the NCI column, the opening balance of retained earnings under 'Parent' column would be:

A) $54 000.
B) $70 000.
C) $86 000.
D) $16 000.

Question 11

Under the full goodwill method, the NCI is measured based on:

A) the fair value of the shares that parent owns in the subsidiary.
B) the fair value of the shares that the NCI owns in the subsidiary.
C) the proportionate share of the fair value of the acquiree's identifiable assets and liabilities.
D) the proportionate share of the carrying amount of the acquiree's identifiable assets and liabilities.

Question 12

When presenting a consolidated statement of financial position the non-controlling interest is:

A) presented as a separate component of total assets and total liabilities.
B) presented separately within the non-current liability section.
C) presented separately within the equity section.
D) shown as a separate portion of net assets.

Question 13

When preparing a set of consolidated financial statements, the pre-acquisition entry relates to:

A) both the parent and the non-controlling interest in the subsidiary.
B) only the investment by the non-controlling interest in the subsidiary.
C) only the investment by the parent in the subsidiary.
D) the total investment by the parent in the subsidiary plus the after-tax effect of the investment by the non-controlling interest.

Question 14

Under the full goodwill method, a control premium is recognised when:

A) the parent paid less than the fair value for the shares they acquired.
B) the parent paid more than the fair value for the shares they acquired.
C) the consideration transferred by the parent is more than the fair value of the identifiable net assets acquired.
D) the consideration transferred by the parent is less than the fair value of the identifiable net assets acquired.

Question 15

Which of the following statements with regards to control premium is incorrect?

A) it is recognised under the full goodwill method.
B) it is recognised only in the pre-acquisition entry.
C) it is not recognised under the partial goodwill method.
D) it is recognised in the business combination valuation entries.

Question 16

Which of the following is not a reason for an entity to prefer to have less than 100% ownership interest in a subsidiary?

A) To comply with regulatory requirements.
B) To receive the whole gain on acquisition.
C) To decrease the cash necessary to acquire the control over the subsidiaries.
D) To incentivise the subsidiary's executives by allowing them to hold a non-controlling interest.

Question 17

Under the full goodwill method:

A) acquired goodwill consists of both goodwill of the subsidiary and the premium paid by the parent to acquire control over the subsidiary.
B) the NCI is measured at the NCI's proportionate share of the acquiree's identifiable assets and liabilities.
C) the NCI does not get a share of any equity relating to goodwill.
D) only goodwill acquired by parent entity will be recognised.

Question 18

According to AASB 10 Consolidated Financial Statements, the term 'non-controlling interest' means:

A) equity in a subsidiary not attributable, directly or indirectly, to a parent.
B) the total equity of the combined group.
C) the equity in the parent entity other than the portion owned by the subsidiary entity.
D) the equity in the economic entity other than that which can be attributed to the subsidiary entity.

Question 19

The following statements are reasons as to why entities do not use the full goodwill method. Which of these statements is incorrect?

A) It is more costly to measure NCI at fair value.
B) Users of financial statements do not see any value in the reported NCI.
C) There is insufficient evidence to assess the marginal benefits of reporting the acquisition-date fair value of the NCI.
D) The full goodwill method results in less reliable NCI information due to difficulties in measuring NCI at fair value.

Question 20

Marion Limited paid $180 000 for 60% of the shares in Lucia Limited. At the date of acquisition Lucia Limited had share capital of $160 000 and retained earnings of $90 000 and all of Lucia Limited's assets and liabilities were recorded at fair value, except for plant that had a fair value of $40 000 more than its carrying amount. The company tax rate was 30%. The fair value of identifiable net assets acquired by Marion Limited amounted to:

A) $166 800
B) $174 000
C) $178 000
D) $180 000

Question 21

Ryan Limited acquired 80% of the shares in Tully Limited for $165 000. At acquisition date, share capital in Tully was $120 000 and reserves amounted to $40 000. All assets and liabilities of Tully were recorded at fair value at acquisition date except machinery which was recorded at $20 000 below fair value. The fair value of the NCI at the date of Ryan's acquisition was $40 000 and the full goodwill method is adopted by the group. If the company tax rate was 30%, the total amount of goodwill recorded in relation to this business combination amounts to:

A) $5 000
B) $31 000
C) $26 000
D) $25 000

Question 22

A non-controlling interest in a subsidiary entity is entitled to a share of which of the following items? $$\begin{array} { | l | c | c | c | c | } \hline & \text { I } & \text { II } & \text { III } & \text { IV } \\\hline \begin{array} { l } \text { Subsidiary's equity at acquisition } \\\text { date }\end{array} & \text { Yes } & \text { Yes } & \text { Yes } & \text { Yes } \\\hline \begin{array} { l } \text { Chariges in the subsidiary's equity } \\\text { since acquisition date }\end{array} & \text { Yes } & \text { No } & \text { No } & \text { Yes } \\\hline \begin{array} { l } \text { Chariges in the subsidiary's equity of } \\\text { the curent period }\end{array} & \text { Yes } & \text { Yes } & \text { No } & \text { No } \\\hline\end{array}$$

A) I.
B) II.
C) III.
D) IV.

Question 23

During the previous year, a partly-owned subsidiary made a transfer from retained earnings to a general reserve. In the current year, which of the following lines would appear in the NCI journal relating to the previous year's transfer?

A) DR NCI.
B) CR Retained earnings.
C) DR General reserve.
D) CR Transfer to general reserve.

Question 24

Which of the following is not an effect of choosing the partial goodwill method over the full goodwill method?

A) There will be differences in the reported amounts at acquisition date in the consolidated statements.
B) It is more costly to measure the NCI under the partial goodwill method.
C) Where the parent acquires some or all of NCI after obtaining control, there will be a higher impact on equity attributable to the parent shareholders.
D) The impairment test on goodwill after acquisition will be more complex under the partial goodwill method.

Question 25

A non-controlling interest in the net assets of a subsidiary consists of the amount of those non-controlling interests at the date of the business combination:

A) less 100% of any post-acquisition dividends paid.
B) less the parent's share of any post-acquisition dividends paid or declared.
C) less the non-controlling proportionate share of increases in the subsidiary's equity since the business combination.
D) plus the non-controlling proportionate share of the changes in the subsidiary's equity since the business combination.

Question 26

Maddie Ltd holds 80% interest in Emily Ltd. Emily Ltd sells inventory to Maddie Ltd during the year for $15 000. The inventories originally cost $13 000 when purchased from an external party. At the end of the year 50% of the inventories are still on hand. The tax rate is 30%. The NCI adjustment required in relation to this transaction is a debit to NCI of:

A) $140
B) $700
C) $1000
D) Nil.

Question 27

A non-controlling interest is entitled to a share of which of the following items?
I. Equity of the group entity at acquisition date.
II. Equity of the subsidiary at acquisition date.
III. Current period profit or loss of the subsidiary entity.
IV. Changes in equity of the subsidiary since acquisition date and the beginning of the current financial period.

A) III only.
B) I, II and III.
C) I and II only.
D) II, III and IV only.

Question 28

Angus Limited owns 80% of the share capital of Boris Limited. Boris Limited paid a dividend of $150 000 during the financial period. The adjustment entries in the consolidation worksheet for the dividend include:

A) DR Dividend paid $150 000.
B) DR Dividend revenue $120 000.
C) DR Dividend payable $120 000.
D) DR Dividend receivable $150 000.

Question 29

The step 1 NCI entry to reflect the NCI share of equity at acquisition date:

A) changes every period as a result of changes in NCI.
B) never changes, and is the same in all subsequent consolidation worksheets.
C) changes every period as a result of changes in the subsidiary's pre-acquisition equity.
D) changes every period as a result of changes in the subsidiary's post-acquisition equity.

Question 30

James Limited is a subsidiary of Anastasia Limited. When Anastasia acquired its 75% interest in James, the retained earnings of James were $10 000. At the beginning of the current period James Limited's retained earnings were $40 000. James earned profit after tax of $20 000 during the current period. The total share of the non-controlling interest in the equity of James Limited at the end of the current period is:

A) $7 500
B) $10 000
C) $15 000
D) $17 500

Question 31

Changes in equity in the previous periods up to the beginning of the current period that must be identified for the step 2 NCI entry do not include:

A) transfers to/from reserves.
B) changes in share capital.
C) dividends paid/declared.
D) changes in retained earnings, adjusted for the impact of BCVR entries on the opening balance of retained earnings.

Question 32

Changes in equity in the current period that must be identified for the step 3 NCI entry include:

A) dividends paid/declared.
B) transfers to/from reserves.
C) profit/(loss) earned, adjusted for the impact of BCVR entries on the current profit.
D) all of these options.

Question 33

During the current year, a partly-owned subsidiary has made a transfer from retained earnings to a general reserve. Which of the following lines would appear in the NCI journal relating to the current year's transfer?

A) DR NCI.
B) CR General reserve.
C) DR Retained earnings.
D) CR Transfer to general reserve.

Question 34

Graham Limited acquired 90% of the share capital and reserves of Terry Limited for $340,000. Share capital was $200 000 and reserves amounted to $124 000. All assets and liabilities were recorded at fair value except equipment which was recorded at $60 000 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The NCI share of equity at the date of acquisition was:

A) $16 600
B) $34 000
C) $32 400
D) $38 400

Question 35

For an intragroup transaction to require an adjustment to the calculation of the non-controlling interest share of equity it must have which of the following characteristics?
I. The transaction must result in the subsidiary recording a profit or a loss.
II. After the transaction, the other party (not the party holding the non-controlling interest) must have on hand an asset on which unrealised profit is accrued.
III. The initial consolidation adjustment must affect both the statement of financial position and statement of comprehensive income.

A) I and II only.
B) II and III only.
C) I, II and III.
D) None of the above.

Question 36

Under the partial goodwill method:

A) only goodwill acquired by NCI will be recognised.
B) the NCI is measured at fair value of the shares they own.
C) the goodwill will be recognised in the business combination valuation entries.
D) the NCI is measured at the NCI's proportionate share of the fair value of acquiree's identifiable assets and liabilities.

Question 37

Parsley Limited owns 90% of the share capital of Sage Limited. Sage Limited paid a dividend of $60 000 during the financial period. The NCI adjustment entries in the consolidation worksheet for the dividend include:

A) DR NCI $6 000.
B) DR Dividend revenue $6 000.
C) DR Dividend paid $6 000.
D) DR Dividend payable $6 000.

Question 38

Graham Limited acquired 90% of the share capital and reserves of Terry Limited for $340,000. Share capital was $100 000 and reserves amounted to $124 000. All assets and liabilities were recorded at fair value except equipment which was recorded at $60 000 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The amount of goodwill acquired by Graham Limited in this business combination was:

A) $5 600
B) $10 000
C) $10 600
D) $26 000

Question 39

Maddie Ltd holds 80% interest in Emily Ltd. Emily Ltd sells inventory to Maddie Ltd during the year for $15 000. The inventories originally cost $13 000 when purchased from an external party. At the end of the year all inventories are still on hand. The tax rate is 30%. The NCI adjustment to this intragroup transaction is a debit to NCI of:

A) Nil.
B) $280
C) $400
D) $600

Question 40

Kenny Ltd holds a 60% interest in Swan Ltd. Kenny Ltd sells inventory to Swan Ltd during the year for $40 000. The inventories originally cost Kenny Ltd $32 000 when purchased from an external party. At the end of the year 50% of the inventories are still on hand. The tax rate is 30%. The NCI adjustment required in relation to this intragroup transaction is a debit to NCI of:

A) Nil.
B) $1 120
C) $2 240
D) $2 800

Question 41

In respect to the intragroup services provided by a partly-owned subsidiary to the parent, the NCI adjustment required is a debit to NCI of:

A) Nil.
B) the service fees.
C) the service fees multiplied by the NCI ownership interest.
D) the service fees multiplied by the parent's ownership interest.

Question 42

North Limited acquired 80% of the shares in South Limited for $100 000. At acquisition date, share capital in South was $90 000 and reserves amounted to $50 000. All assets and liabilities of South were recorded at fair value at acquisition date. The partial goodwill method is adopted by the group. If the company tax rate was 30%, the NCI will recognise a gain on bargain purchase of:

A) $12 000
B) $8 000
C) $2 400
D) Nil.

Question 43

In respect to the intragroup services, any profit or loss is regarded as:

A) unrealised.
B) immediately realised.
C) insignificant and so not adjusted on consolidation.
D) extraordinary and so ignored for consolidation reporting purposes.

Question 44

In accordance with the AASB 12 Disclosure of Interests in Other Entities, which of the following information relating to the NCI is not required to be disclosed?

A) The profit or loss allocated to NCI of the subsidiary during the reporting period.
B) The proportion of ownership interests held by NCI.
C) The total number of shares owned by the NCI.
D) The name of the subsidiary.

Question 45

Maddie Ltd holds 80% interest in Emily Ltd. Emily Ltd sells inventory to Maddie Ltd during the year for $15 000. The inventories originally cost $13 000 when purchased from an external party. At the end of the year all inventories are still on hand, but were sold by the end of the next period. The tax rate is 30%. The NCI adjustment required in relation to this intragroup transaction at the end of the next period is a credit to Retained earnings (opening balance) of:

A) Nil.
B) $1400
C) $2000
D) $280

Question 46

Ryan Ltd holds a 75% interest in Tully Ltd. On 30 June 2021 Tully Ltd transferred a depreciable non-current asset to Ryan Ltd at a profit of $15 000. The remaining useful life of the asset at the date of transfer was 5 years and the tax rate is 30%. The impact of the above transaction on the NCI share of profit at 30 June 2021 is:

A) an increase of $2 625
B) an increase of $3 750
C) a decrease of $2 625
D) a decrease of $3 750

Question 47

Ryan Ltd holds a 75% interest in Tully Ltd. On 1 July 2021, Tully Ltd transferred a depreciable non-current asset to Ryan Ltd at a profit of $15 000. The remaining useful life of the asset at the date of transfer was 5 years and the tax rate is 30%. The impact of the above transaction on the NCI for the year ended 30 June 2023 is:

A) an increase of $1 050.
B) a decrease of $1 050.
C) an increase of $1 500.
D) a decrease of $1 500.

Question 48

Which of the following statements is correct?

A) All intragroup transactions have an impact on the NCI share of equity.
B) Transactions that do not affect profit will not give rise to an adjustment to the NCI.
C) When the parent entity sells inventories to its subsidiary, a consolidation adjustment needs to be recorded to reduce the NCI.
D) The NCI is not entitled to share the group's profit.

Question 49

The intragroup transactions considered for NCI are normally those involving:

A) the NCI selling inventories items or non-current assets to the parent for a profit or loss.
B) the parent selling inventories items or non-current assets to the subsidiary for a profit or loss.
C) the subsidiary selling inventories items or non-current assets to the parent for a profit or loss.
D) all of these options are correct.

Question 50

Ryan Ltd holds a 75% interest in Tully Ltd. On 1 July 2021, Tully Ltd transferred a depreciable non-current asset to Ryan Ltd at a profit of $15 000. The remaining useful life of the asset at the date of transfer was 5 years and the tax rate is 30%. The impact of the above transaction on the NCI share of profit for the year ended 30 June 2022 is:

A) an increase of $3 000
B) an increase of $2 100
C) a decrease of $3 000
D) a decrease of $2 100

Question 51

If a gain on bargain purchase arises on a business combination, the non-controlling interest:

A) receives no share of the gain.
B) is allocated 100% of the gain.
C) is entitled to a proportionate share of the gain based on its level of share ownership.
D) receives a proportionate share of the gain after adjustments for tax effects have been made.