Question 1

Where a subsidiary is partly owned by a parent and an NCI, any goodwill arising in the acquisition analysis is required to be allocated between that attributable to the parent and that attributable to the NCI.

Accepted Answer

The answer of Where a subsidiary is partly owned by...

Question 2

Which of the following statements is correct?

Accepted Answer

The NCI is entitled to a share of consolidated equity. This is because the NCI represents the portion of a subsidiary's equity that is not owned by the parent company. Therefore, the NCI's share of equity is included in the consolidated financial statements to reflect its ownership interest in the subsidiary. Option A is incorrect because the entry to reflect the NCI share of equity is made only once, at the time of acquisition. Option C is incorrect because there is no fixed formula for calculating the NCI share of equity; it depends on the ownership structure of each subsidiary. Option D is incorrect because as stated above, the NCI is entitled to a share of consolidated equity.

Question 3

The NCI is entitled to a share of the consolidated equity of the group.

Accepted Answer

Non-controlling interest (NCI) is entitled to a share of the consolidated equity of the group, as NCI refers to the portion of equity ownership in a subsidiary that is not owned by the parent company.

Question 4

Happy Ltd holds a 60% interest in Valley Ltd. On 1 July 2018 Valley Ltd sold a depreciable non-current asset to Happy Ltd at a profit before tax of $10 000. The remaining useful life of the asset at the date of sale was 4 years and the tax rate is 30%. The impact of the above on the NCI share of profit for the year ended 30 June 2019 is:

Accepted Answer

The profit on sale of the asset needs to be eliminated in full from the group's perspective, including the non-controlling interest's (NCI) share of the profit. The profit before tax was $10,000, and the asset had a remaining useful life of 4 years, so the annual depreciation on the intra-group profit is $10,000 / 4 = $2,500. The tax effect at 30% is $2,500 * 30% = $750, reducing the annual impact to $2,500 - $750 = $1,750. The NCI's share is 40% (100% - 60% ownership by Happy Ltd), so the impact on the NCI share of profit is 40% of $1,750 = $700. However, since the question asks for the impact for the year ended 30 June 2019, which is one year after the sale, we need to consider the full year's impact, making the correct calculation for the NCI share $700. The options provided do not directly match this calculation, suggesting a possible misunderstanding in the calculation process. Given the options, the closest correct approach involves recognizing the need to adjust for the NCI's share of the profit elimination, but none of the provided options accurately reflects the correct calculation based on the information given. Therefore, a reevaluation of the calculation process is necessary, focusing on the profit elimination and its tax effect, and how it impacts the NCI's share of profit.

Question 5

Which of the following is not one of the 3 steps in calculating the NCI's share of the recorded equity of the subsidiary?

Accepted Answer

The three steps in calculating the NCI's share of the recorded equity of the subsidiary are:
1) Determine NCI share of the changes in equity in the current period.
2) Determine the NCI share of equity of the subsidiary at acquisition date.
3) Determine the NCI share of the subsidiary's equity between the date of acquisition and the beginning of the current period. 
D is not one of the three steps, as it refers to determining the NCI share of the subsidiary's equity prior to the date of acquisition.

Question 6

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 Current period profit or loss of the subsidiary entity
III Changes in equity of the subsidiary between acquisition date and the beginning of the financial period
IV Equity of the subsidiary at acquisition date

Accepted Answer

Non-controlling interest is entitled to a share of the current period profit or loss of the subsidiary (II), changes in equity of the subsidiary between the acquisition date and the beginning of the financial period (III), and the equity of the subsidiary at the acquisition date (IV).

Question 7

Where a partly owned subsidiary has a dividend declared but not yet paid at balance date, the NCI share of equity is reduced by the NCI share of the dividend and the dividend payable to the NCI is eliminated.

Accepted Answer

The NCI share of equity is not reduced by the NCI share of the dividend until the dividend is actually paid. Instead, the dividend payable to the NCI is recognized as a liability in the consolidated financial statements until it is paid.

Question 8

Currimundi Ltd holds a 60% interest in Beach Ltd. Beach Ltd purchases inventories from Currimundi Ltd during the year for $30 000. The inventories originally cost $21 000. At the end of the year 80% of the inventories are still on hand. The tax rate is 30%. The NCI adjustment required in relation to this transaction includes a debit of which of the following?

Accepted Answer

The answer of Currimundi Ltd holds a 60% interest in...

Question 9

The NCI share of different categories of equity is required to be separately disclosed on the face of the consolidated statement of financial position.

Accepted Answer

The NCI (Non-Controlling Interest) is typically presented as a single line item in the equity section of the consolidated statement of financial position, not separately by category.

Question 10

A non-controlling interest in the net assets of a subsidiary consists of the non-controlling interest's share at the date of the business combination:

Accepted Answer

A non-controlling interest in the net assets of a subsidiary includes the non-controlling interest's share at the date of the business combination plus a share of the changes in the subsidiary's equity since the business combination. This reflects the non-controlling interest's entitlement to their share of the subsidiary's earnings and other equity changes post-acquisition.

Question 11

Non-controlling interests in the equity of a subsidiary at the date of acquisition are reflected in Step 1 of the NCI allocation process.

Accepted Answer

Non-controlling interests are accounted for in Step 1 of the NCI allocation process, which involves the determination of the fair value of the subsidiary's identifiable assets and liabilities at the date of acquisition. This fair value is then used to calculate the amount of goodwill or bargain purchase gain, as well as the initial carrying amount of the non-controlling interests.

Question 12

Which of the following statements is incorrect?

Accepted Answer

The NCI share of equity at the acquisition date is not adjusted for its share of any gain on bargain purchase. Instead, gains on bargain purchases are typically recognized in full by the parent company in the consolidated financial statements, not allocated between the parent and the non-controlling interest (NCI).

Question 13

When preparing consolidated financial statements, any profit or loss that arises in relation to the intragroup transfer of services is regarded as:

Accepted Answer

The answer of When preparing consolidated financial statements, any profit...

Question 14

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

Accepted Answer

The transfer from a general reserve to retained earnings would result in a debit to the general reserve and a credit to retained earnings. As the question specifically asks for the NCI consolidation entry, we are looking for the impact on the Non-Controlling Interest (NCI) in the subsidiary. The NCI's share of the transfer would be recorded as a debit to "Transfer from general reserve" and a credit to "General reserve" (as the reserve is being decreased). Therefore, the correct answer is D, DR Transfer from general reserve.

Question 15

The full effects of transactions between entities within a group are eliminated on consolidation, regardless of the existence of an NCI.

Accepted Answer

When preparing consolidated financial statements, all transactions between entities within the group are eliminated regardless of the existence of a non-controlling interest (NCI). This is a fundamental principle of consolidation accounting, as the aim is to present the financial position and performance of the group as a single economic entity. Elimination of intra-group transactions ensures that only transactions with external parties are recorded in the consolidated financial statements, providing a more accurate and transparent view of the group's financial performance.

Question 16

The NCI is a contributor of equity to the group.

Accepted Answer

NCI stands for Non-controlling Interest, which represents the portion of a subsidiary company that is not owned by the parent company. As the NCI has an ownership stake in the group, they are considered an equity contributor.

Question 17

Because it is necessary to distinguish between the parents share and the NCI share of equity in the consolidated financial statements, extra columns are added in the consolidation worksheet to divide the group equity into the NCI share and the parent's share.

Accepted Answer

This statement is true, as it is indeed necessary to differentiate between the equity attributable to the parent company and the equity attributable to the NCI in consolidated financial statements. To do this, additional columns are added to the consolidation worksheet to separate the parent's share and the NCI share of equity.

Question 18

Moffatt Ltd holds a 60% interest in Beach Ltd. Beach Ltd sells inventories to Moffatt Ltd during the year for $20 000. The inventories originally cost $14 000. At the end of the year 80% of the inventories are still on hand. The tax rate is 30%. The NCI adjustment required in relation to this transaction includes which of the following?

Accepted Answer

The NCI adjustment required is to eliminate the profit included in the inventory sold by Beach Ltd to Moffatt Ltd. The profit is calculated as the difference between the cost of the inventory and the selling price, which is $14,000 - $20,000 = $6,000. Since Moffatt Ltd holds a 60% interest in Beach Ltd, the NCI share of this profit is 40%, which is $6,000 x 40% = $2,400. Since 80% of the inventory is still on hand at the end of the year, the NCI share of the profit that has not yet been recognized is $2,400 x 80% = $1,920. Therefore, the NCI adjustment required is to debit NCI for $1,920.

Question 19

The consolidated statement of comprehensive income must separately disclose the consolidated profit for the period attributable to equity holders of the parent and the NCI.

Accepted Answer

This is required by International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (US GAAP).

Question 20

Where a subsidiary is partly owned by a parent and an NCI, both the BCVR entries and the pre-acquisition entries are adjusted to reflect only the parent's share of the subsidiary's equity balances.

Accepted Answer

The BCVR (Book Value to Consideration Received) entries and the pre-acquisition entries reflect the total change in the subsidiary's equity balances, not just the parent's share. The Non-Controlling Interest (NCI) share is also considered in these adjustments to present a complete picture of the acquisition's impact on equity.

Quiz 12: Consolidation: Non-Controlling Interest