Deck 6: Partly-Owned Subsidiaries: Indirect Non-Controlling Interest

Question 1

When a parent does not have an ownership interest in a subsidiary the NCI is 100%.

Answer 1

True

Question 2

A sub-subsidiary is:

A) a subsidiary of a parent company.
B) a subsidiary of a subsidiary company.
C) either A or B.
D) none of the above.

Answer 2

B

Question 3

Parent Ltd owns 20% of S1 Ltd and 80% of S2 Ltd.In addition,S2 Ltd owns 70% of S1 Ltd.The total NCI in S1 Ltd is:

A) 10%.
B) 14%.
C) 24%.
D) none of the above.

Answer 3

C

Question 4

Why is the indirect NCI not entitled to any share of pre-acquisition equity under the multiple consolidation method?

Question 5

Why does the multiple consolidation method adopt a revaluation approach to the net assets of sub-subsidiaries?

Question 6

Direct plus indirect ownership interests must always sum to 100% for a group.

Question 7

Parent Ltd owns 90% of S1 Ltd and S1 Ltd owns 60% of S2 Ltd.Parent Ltd's indirect ownership interest in S2 Ltd is:

A) 90%.
B) 60%.
C) 54%.
D) none of the above.

Question 8

Parent Ltd owns 90% of S1 Ltd and S1 Ltd owns 60% of S2 Ltd.The Parent Ltd NCI indirect ownership interest in S2 Ltd is:

A) 10%.
B) 40%.
C) 6%.
D) none of the above.

Question 9

Explain why indirect ownership interests are not relevant to determining control in a tiered corporate group.

Question 10

Discuss the disadvantages of the sequential consolidation method.

Question 11

A sub-subsidiary provides the following information: The sub-subsidiary is owned 60% by its parent,which is owned 80% by the ultimate parent.
Retained profits at the date of acquisition are $400.
Profit for the year first is $200.
The total indirect NCI is:

A) $72.
B) $48.
C) $24.
D) none of the above.

Question 12

The ultimate parent-immediate parent-subsidiary description applies to corporate groups involving indirect ownership interests.

Question 13

A Ltd owns 80% of B Ltd and B Ltd owns 60% of C Ltd.Using the sequential consolidation method,the sequence of consolidation would be:

A) A with B and then consolidated A with C.
B) B with C and then consolidated B with A.
C) A, B and C together.
D) none of the above.

Question 14

Parent Ltd owns 20% of S1 Ltd and 80% of S2 Ltd.In addition,S2 Ltd owns 70% of S1 Ltd.The total Parent Ltd interest in S1 Ltd is:

A) 20%
B) 76%
C) 56%
D) none of the above

Question 15

Is the proportionate interest goodwill method consistent with not allocating goodwill impairment losses against the indirect NCI?

Question 16

A owns 80% of B and B owns 60% of C.If C pays a dividend and B distributes the amount received to its own shareholders,the allocation of the dividend will be:

A) parent 48%, NCI 52%.
B) parent 52%, NCI 48%.
C) parent 100%.
D) NCI 100%.

Question 17

The concept of indirect ownership interests is used in:

A) the multiple consolidation method.
B) the sequential consolidation method.
C) both A and B.
D) neither method.

Question 18

Parent Ltd owns 20% of S1 Ltd and controls S2 Ltd without holding any shares in S2 Ltd.In addition,S2 Ltd owns 70% of S1 Ltd.The Parent Ltd indirect interest in S1 Ltd is:

A) 100%.
B) 70%.
C) nil.
D) none of the above.

Question 19

In a multiple consolidation,the ownership interests of subsidiaries are determined using:

A) direct ownership interests.
B) indirect ownership interests.
C) both direct and indirect ownership interests.
D) none of the above.

Question 20

The sequential consolidation method uses a 'top down' approach.

Question 21

If the parent acquires the child after the child has established a controlling interest in the grandchild,then the acquisitions are referred to as sequential.

Question 22

Indirect NCI are entitled to a share of the pre-acquisition equity of sub-subsidiaries.

Question 23

The sequence of acquisition dates in a tiered group is irrelevant to the consolidation process for indirect NCI.

Question 24

Which term describes the profits that each entity could distribute if distributions between the interrelated entities were made continuously until next to nothing was left?

A) Notional
B) Reciprocal
C) Marginal
D) Consolidated

Question 25

The calculation of notional profits of entities with cross-shareholdings is required to:

A) determine the parent ownership interest in the subsidiaries.
B) determine the NCI ownership interest in the subsidiaries.
C) determine both the parent and NCI ownership interests in the subsidiaries.
D) none of the above.

Question 26

Cross-shareholdings between subsidiaries are:

A) legal under the Corporations Act.
B) illegal under the Corporations Act.
C) not covered by the Corporations Act.
D) none of the above

Question 27

In a group's consolidated statement of comprehensive income,profit attributable to the non-controlling interest is included in Other comprehensive income.

Question 28

Discuss the current position of the Corporations Act in respect to reciprocal ownership interests.

Question 29

Circular shareholdings arise where:

A) a subsidiary holds an equity interest in its parent.
B) a sub-subsidiary holds an interest in another subsidiary of its parent.
C) a subsidiary holds an interest in a sub-subsidiary.
D) none of the above.

Question 30

Circular shareholdings are allowed under the Corporations Act.