Question 1

P Ltd owns 75% of A Ltd which owns 60% of B Ltd.What is the direct non- controlling interest in A Ltd?
A)40%
B)45%
C)25%
D)15%

Accepted Answer

The direct non-controlling interest in A Ltd is the remaining 25% ownership not owned by P Ltd. Therefore, the answer is 25%.

Question 2

Where a parent (P)makes an investment in a subsidiary (S1)through the acquisition of shares on or before the subsidiary (S1)makes an investment in its subsidiary (S2),it is known as a/an:
A)non- sequential acquisition
B)sequential acquisition
C)direct acquisition
D)none of the above

Accepted Answer

This is known as a sequential acquisition, as the investment is made in a step-by-step process, with the parent company investing in the first subsidiary before the first subsidiary invests in the second subsidiary. Non-sequential acquisition would involve the parent company investing in both subsidiaries simultaneously or in a different order, while a direct acquisition refers to the parent company acquiring the subsidiary directly without any intermediate subsidiary.

Question 3

P Ltd owns 60% of A Ltd which owns 70% of B Ltd.B Ltd owns 85% of C Ltd,as well as owning 80% of D Ltd. What is the direct non- controlling interest in B Ltd?
A)15%
B)20%
C)40%
D)30%

Accepted Answer

D

Question 4

Using the information in question 23,what is the indirect parent entity interest in C Ltd?
A)22.4%
B)33.6%
C)35.7%
D)42%

Accepted Answer

The indirect parent entity interest in C Ltd is calculated by multiplying the parent entity's interest in the subsidiary by the subsidiary's interest in C Ltd. If the parent owns 60% of a subsidiary that owns 59.5% of C Ltd, the indirect interest is 60% * 59.5% = 35.7%.

Question 5

P Ltd owns 80% of A Ltd which owns 75% of B Ltd.What is the indirect non- controlling interest in B Ltd?
A)25%
B)60%
C)16%
D)15%

Accepted Answer

Indirect non-controlling interest in B Ltd can be calculated as:

= (1 - ownership percentage of A Ltd in B Ltd) x (1 - ownership percentage of P Ltd in A Ltd)
= (1 - 75%) x (1 - 80%)
= 0.25 x 0.2
= 0.05 or 5%

Therefore, the indirect non-controlling interest in B Ltd is 15%.

Question 6

A method of consolidating that involves a series of single- stage subconsolidations with the final consolidation of the parent after all the subconsolidations are completed is known as:
A)active consolidation
B)multiple consolidation
C)sequential consolidation
D)none of the above

Accepted Answer

The method described is known as sequential consolidation, where subconsolidations are performed one at a time before the final parent consolidation. Active consolidation involves the simultaneous consolidation of multiple subsidiaries, and multiple consolidation involves multiple levels of subsidiaries being consolidated at once.

Question 7

Using the information in question 23,what is the total indirect non- controlling interest in D Ltd?
A)46.4%
B)33.6%
C)9.6%
D)57.6%

Accepted Answer

The total indirect non-controlling interest in D Ltd is 46.4%. This is calculated as follows:Indirect non-controlling interest in D Ltd = (Non-controlling interest in C Ltd * C Ltd's ownership in D Ltd) + (Non-controlling interest in B Ltd * B Ltd's ownership in D Ltd)= (20% * 60%) + (10% * 40%)= 12% + 4%= 16%Total indirect non-controlling interest in D Ltd = 16% + 30.4% (direct non-controlling interest in D Ltd)= 46.4%

Question 8

Which of the following statements is correct?
A)a parent entity can hold only direct ownership interests in a subsidiary
B)a parent entity can hold only indirect ownership interests in a subsidiary
C)a parent entity cannot control a subsidiary if its shareholding is less than 50%
D)a parent entity can hold both direct and indirect ownership interests in a subsidiary

Accepted Answer

A parent entity can hold both direct and indirect ownership interests in a subsidiary. Direct ownership occurs when the parent entity holds shares directly in the subsidiary. Indirect ownership occurs when the parent entity holds shares in a company that, in turn, holds shares in the subsidiary. The amount of shareholding required for a parent entity to control a subsidiary can vary based on the specific circumstances and legal requirements in different jurisdictions.

Question 9

Which of the following statements is incorrect?
A)in sequential consolidation the direct ownership interest of the immediate parent entity would be used to eliminate pre- acquisition capital and reserves
B)the most important principle underlying the multiple consolidation method is that indirect ownership interests are relevant only to post- acquisition profits and changes in reserves
C)the sequential consolidation method is less cumbersome to apply than the multiple consolidation method
D)sequential consolidation and multiple consolidation both generate exactly the same results

Accepted Answer

The answer of Which of the following statements is incorrect?
A)in...

Question 10

Which of the following statements is incorrect,assuming that the partial goodwill method is used?
A)the subsidiary's operating profit and retained earnings are not adjusted for goodwill impairment losses when calculating non- controlling interest
B)the indirect non- controlling interest (INCI)is not given a share of share capital because it does not own shares in the entity where the INCI is located
C)the DNCI must only be given a share of pre- acquisition equity
D)the direct non- controlling interest (DNCI)must be given a share of both pre- and post- acquisition equity

Accepted Answer

The statement "the DNCI must only be given a share of pre-acquisition equity" is incorrect. Under the partial goodwill method, both the direct and indirect non-controlling interests are given a share of post-acquisition equity, which includes any adjustments made to the subsidiary's operating profit and retained earnings, including goodwill impairment losses.

Question 11

P Ltd owns 60% of A Ltd which owns 90% of B Ltd.What is the indirect parent entity interest in B Ltd?
A)6%
B)40%
C)36%
D)54%

Accepted Answer

P Ltd owns 60% of A Ltd which means P Ltd has a direct interest in only 60% of A Ltd. 
But A Ltd owns 90% of B Ltd, which means it has an indirect interest in 90% of B Ltd. 
Therefore, the indirect parent entity interest of P Ltd in B Ltd would be 60% x 90% = 54%. Hence, the answer is option D.

Question 12

A non- controlling interest that has an interest in a subsidiary as a result of having an interest in the parent of that subsidiary is referred to as a/an:
A)indirect non- controlling interest
B)passive non- controlling interest
C)direct non- controlling interest
D)none of the above

Accepted Answer

An indirect non-controlling interest is a non-controlling interest in a subsidiary that is held as a result of having an interest in the parent company of that subsidiary. This differs from a direct non-controlling interest, which is a non-controlling interest held directly in the subsidiary itself. A passive non-controlling interest is not a commonly used term in accounting and finance.

Question 13

An acquisition in which a parent (P)acquires shares in a subsidiary (S1)after that subsidiary (S1)has acquired shares in its subsidiary (S2)is referred to as a/an:
A)passive acquisition
B)active acquisition
C)non- sequential acquisition
D)sequential acquisition

Accepted Answer

The answer of An acquisition in which a parent (P)acquires...

Question 14

Explain the difference between sequential and non- sequential acquisition.

Accepted Answer

The answer of Explain the difference between sequential and non-...

Question 15

A method of consolidating whereby the ultimate parent entity and all of its subsidiaries and their subsidiaries are consolidated simultaneously is referred to as:
A)non- sequential consolidation
B)multiple consolidation
C)sequential consolidation
D)indirect consolidation

Accepted Answer

The answer of A method of consolidating whereby the ultimate...

Question 16

Which of the following statements is correct?
A)the DNCI share of operating profit and retained earnings must not be adjusted for unrealised profits/losses caused by intragroup transactions
B)the DNCI is not given a share of equity of the relevant subsidiary where the DNCI is located
C)the direct non- controlling interest (DNCI)is given a share of equity of the relevant subsidiary where the DNCI is located
D)none of the above

Accepted Answer

The direct non-controlling interest (DNCI) is indeed given a share of the equity of the relevant subsidiary where the DNCI is located. This reflects their ownership stake in the subsidiary, separate from the parent company's controlling interest.

Question 17

Explain the differences between sequential and multiple consolidation.

Accepted Answer

The answer of Explain the differences between sequential and multiple...

Quiz 15: Consolidation: Indirect Non-Controlling Interests

P Ltd owns 75% of A Ltd which owns 60% of B Ltd.What is the direct non- controlling interest in A Ltd?

Where a parent (P) makes an investment in a subsidiary (S1) through the acquisition of shares on or before the subsidiary (S1) makes an investment in its subsidiary (S2) ,it is known as a/an:

P Ltd owns 60% of A Ltd which owns 70% of B Ltd.B Ltd owns 85% of C Ltd,as well as owning 80% of D Ltd. What is the direct non- controlling interest in B Ltd?

Using the information in question 23,what is the indirect parent entity interest in C Ltd?

P Ltd owns 80% of A Ltd which owns 75% of B Ltd.What is the indirect non- controlling interest in B Ltd?

A method of consolidating that involves a series of single- stage subconsolidations with the final consolidation of the parent after all the subconsolidations are completed is known as:

Using the information in question 23,what is the total indirect non- controlling interest in D Ltd?

Which of the following statements is correct?

Which of the following statements is incorrect?

Which of the following statements is incorrect,assuming that the partial goodwill method is used?

P Ltd owns 60% of A Ltd which owns 90% of B Ltd.What is the indirect parent entity interest in B Ltd?

A non- controlling interest that has an interest in a subsidiary as a result of having an interest in the parent of that subsidiary is referred to as a/an:

An acquisition in which a parent (P) acquires shares in a subsidiary (S1) after that subsidiary (S1) has acquired shares in its subsidiary (S2) is referred to as a/an:

Explain the difference between sequential and non- sequential acquisition.

A method of consolidating whereby the ultimate parent entity and all of its subsidiaries and their subsidiaries are consolidated simultaneously is referred to as:

Which of the following statements is correct?

Explain the differences between sequential and multiple consolidation.