Question 1

The shareholders' interest in a subsidiary that is termed a 'minority interest' derives its name because,in comparison to the interest held be the shareholders of the parent entity,the minority interest:
A) Has less equity in the subsidiary.
B) Has less voting power in the subsidiary.
C) Has less equity and less voting power in the subsidiary.
D) None of the above.

Accepted Answer

D

Question 2

The disclosure of non controlling interest proportion of each equity balance in the consolidated financial statements provides useful information on:
A) dividend payment capacity
B) business activity results
C) Segment activity results
D) all the above

Accepted Answer

The disclosure of non controlling interest proportion in the consolidated financial statements provides useful information on all of the above. It can help in determining the dividend payment capacity, as the non controlling interest represents the portion of earnings attributable to minority shareholders. Additionally, it can provide insights into the results of the overall business activity and segment activity.

Question 3

The shareholders of the parent entity in a group are entitled to:
A) total profits of all group members
B) parent entity interest in consolidated group profit
C) non controlling interest in consolidated group profit
D) none of the above

Accepted Answer

As the parent entity is the majority shareholder of the group, it is entitled to its interest in consolidated group profit, which represents the profits of all the group members. The non-controlling interests would have a claim to a portion of the profits attributable to the subsidiaries they own, but the ultimate responsibility for the consolidated group profits rests with the parent entity. Option A is incorrect, as the shareholders of the parent entity are not entitled to the profits of subsidiaries that fall outside of the group structure. Option D is incorrect, as shareholders of the parent entity should have some claim to the profits generated by the group as a whole.

Question 4

A subsidiary's recorded profits and retained earnings must be adjusted for unrealised profits prior to calculation of NCI allocation.The adjustments apply to:
A) upstream transactions
B) downstream transactions
C) both upstream and downstream transactions
D) none of the above

Accepted Answer

Both upstream and downstream transactions require adjustments for unrealized profits prior to calculating NCI allocation. Upstream transactions are those where a subsidiary sells to its parent company, while downstream transactions are those where a subsidiary purchases from its parent company. In both cases, the subsidiary's recorded profits and retained earnings may be affected by unrealized profits, which need to be adjusted before NCI allocation can be calculated accurately.

Question 5

Company A owns 40% of Company B and this ownership is deemed to represent control.The non controlling interest in B is:
A) 40%
B) 60%
C) 100%
D) No non controlling interest

Accepted Answer

Since Company A owns 40% of Company B and this ownership is deemed to represent control, it means that Company A has a controlling interest and therefore the remaining 60% of ownership in Company B represents the non-controlling interest.

Question 6

Non controlling interest at date of acquisition must be measured using:
A) the fair value method
B) the proportionate interest goodwill method
C) either A or B
D) none of the above

Accepted Answer

Non controlling interest at date of acquisition can be measured using either the fair value method or the proportionate interest goodwill method, depending on the circumstances of the acquisition. Therefore, both options are acceptable under GAAP.

Question 7

Which of the following statements is correct?
A) The minority interest cannot have the majority of the equity in a subsidiary since it would not then be a minority interest.
B) The minority interest cannot have the majority of voting power in a subsidiary since a majority would give that interest the power to control a subsidiary.
C) The minority interest may have the majority of the equity and a majority of the voting power in a subsidiary but still remain a minority interest.
D) None of the above.

Accepted Answer

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

Question 8

-Using the fair value (100% goodwill)method the goodwill on acquisition is:
A) $140,000
B) $186,000
C) $70,000
D) none of the above

Accepted Answer

The answer of 
-Using the fair value (100% goodwill)method the...

Question 9

In the preparation of consolidated financial statements,the measurement of a minority interest in the shareholders' equity of a subsidiary at the reporting date may be affected by:
A) Management fees charged to the subsidiary by the parent entity.
B) Unrealised profits arising from sales of inventories in the previous period by the subsidiary to another subsidiary in the same group.
C) Consolidation adjustments made against the retained earnings of the subsidiary at the end of the previous period.
D) None of the above.

Accepted Answer

The answer of In the preparation of consolidated financial statements,the...

Question 10

The parent interest (PI)in equity will be calculated as follows:
A) consolidated equity less non controlling interest
B) parent equity plus PI share of subsidiary equity
C) parent equity plus non controlling interest
D) none of the above

Accepted Answer

The parent interest in equity represents the portion of equity that belongs to the parent company after deducting the non-controlling interest in consolidated equity. Therefore, choice A is the correct option. Choices B and C are incorrect as they do not provide the correct calculation for parent interest in equity. Choice D is incorrect as it suggests that none of the above options are correct, which is not true.

Question 11

In the calculation of NCI share of profit consolidation adjusting entries which do not change group profit will be:
A) adjusted if they affect the subsidiary's reported profit
B) adjusted if the affect the parent entity's reported profit
C) not adjusted
D) none of the above

Accepted Answer

Consolidation adjusting entries that do not change group profit do not need to be adjusted for NCI share of profit. Any entries that do not affect the group as a whole will not affect the calculation of NCI share of profit.

Question 12

The ownership interests in a group which includes partly owned subsidiaries consist of:
A) the parent entity shareholders
B) the 'outside' subsidiary entity shareholders
C) both the parent entity and the 'outside' subsidiary entity shareholders
D) none of the above

Accepted Answer

The ownership interests in a group which includes partly owned subsidiaries belong to both the parent entity and the 'outside' subsidiary entity shareholders. The parent entity, as the majority owner of the subsidiary, typically holds a controlling interest in the subsidiary, while the 'outside' shareholders hold minority interests. Therefore, both groups of shareholders have ownership interests in the group.

Question 13

Where the shareholder's equity of a subsidiary is negative:
A) the NCI will be included as part of the parent interests
B) the NCI will be shown as a separate amount in the consolidated accounts
C) NCI is ignored for consolidation purposes
D) none of the above

Accepted Answer

When the shareholder's equity of a subsidiary is negative, it means the subsidiary has accumulated losses exceeding its assets. In this case, the NCI will be shown as a separate amount in the consolidated accounts, rather than being included as part of the parent interests or ignored for consolidation purposes. This is because the negative equity affects the economic value of the subsidiary, including the value of the NCI's stake in it. Showing the NCI as a separate amount allows for greater transparency and clarity in the consolidated financial statements.

Question 14

-Under the fair value (100% of goodwill)method used in Question 14 the NCI in goodwill is:
A) $34,000
B) $104,000
C) $150,000
D) none of the above

Accepted Answer

The NCI in goodwill is 34% of the total goodwill, which is $100,000. Therefore, the NCI in goodwill is $34,000.

Question 15

In preparing a consolidated financial report,the parent entity consolidates:
A) The financial statements of all entities over which it has the power to exercise control.
B) The financial statements of only those entities over which it has the power to control and in which it holds more than 50% of the voting shares.
C) The financial statements of only those entities in which it holds more than 50% of the ordinary share capital; as a result of which it necessarily has the power to exercise control.
D) None of the above.

Accepted Answer

In preparing a consolidated financial report, the parent entity consolidates the financial statements of all entities over which it has the power to exercise control. This includes subsidiaries where the parent holds more than 50% of the voting shares, but also entities where the parent has the ability to control the financial and operating policies, such as joint arrangements or associates. Therefore, option A) is the most comprehensive and accurate answer.

Question 16

Consistent with the entity concept,full consolidation requires that:
A) the parent ownership proportion of the subsidiary income, expenses, assets, liabilities and equity are included in the consolidated financial statements
B) the non controlling ownership interests are included in the consolidated financial statements
C) The full amount of income, expense, assets, liabilities and equity are included in the consolidated financial statements
D) none of the above

Accepted Answer

Full consolidation involves including the entire amount of the subsidiary's income, expenses, assets, liabilities, and equity in the consolidated financial statements, reflecting the entity concept where the parent and subsidiary are viewed as a single economic entity.

Question 17

When an investment in a subsidiary is impaired,any impairment losses will be:
A) apportioned between PI and NCI
B) borne by the PI
C) ignored
D) none of the above

Accepted Answer

The answer of When an investment in a subsidiary is...

Question 18

The non controlling interest share of a subsidiary's retained earnings will be calculated as a percentage of:
A) opening balance of retained earnings
B) profit for the period
C) dividend and other appropriations
D) the sum of all the above

Accepted Answer

The non-controlling interest share of a subsidiary's retained earnings is calculated as a percentage of the total retained earnings, which includes the opening balance of retained earnings, profit for the period, and adjustments for dividends and other appropriations.

Question 19

Unrealised intra-group profit in opening inventory of a parent company is:
A) added to subsidiary profit in calculating NCI share of profit
B) subtracted from subsidiary profit in calculating NCI share of profit
C) ignored in calculating NCI share of profit
D) none of the above

Accepted Answer

The answer of Unrealised intra-group profit in opening inventory of...

Question 20

-Using the proportionate interest goodwill method,goodwill on acquisition is:
A) $92,000
B) $12,000
C) $36,000
D) none of the above

Accepted Answer

The answer of 
-Using the proportionate interest goodwill method,goodwill on...

Quiz 5: Non-Controlling Interest

The shareholders' interest in a subsidiary that is termed a 'minority interest' derives its name because,in comparison to the interest held be the shareholders of the parent entity,the minority interest:

The disclosure of non controlling interest proportion of each equity balance in the consolidated financial statements provides useful information on:

The shareholders of the parent entity in a group are entitled to:

A subsidiary's recorded profits and retained earnings must be adjusted for unrealised profits prior to calculation of NCI allocation.The adjustments apply to:

Company A owns 40% of Company B and this ownership is deemed to represent control.The non controlling interest in B is:

Non controlling interest at date of acquisition must be measured using:

Which of the following statements is correct?

-Using the fair value (100% goodwill) method the goodwill on acquisition is:

In the preparation of consolidated financial statements,the measurement of a minority interest in the shareholders' equity of a subsidiary at the reporting date may be affected by:

The parent interest (PI) in equity will be calculated as follows:

In the calculation of NCI share of profit consolidation adjusting entries which do not change group profit will be:

The ownership interests in a group which includes partly owned subsidiaries consist of:

Where the shareholder's equity of a subsidiary is negative:

-Under the fair value (100% of goodwill) method used in Question 14 the NCI in goodwill is:

In preparing a consolidated financial report,the parent entity consolidates:

Consistent with the entity concept,full consolidation requires that:

When an investment in a subsidiary is impaired,any impairment losses will be:

The non controlling interest share of a subsidiary's retained earnings will be calculated as a percentage of:

Unrealised intra-group profit in opening inventory of a parent company is:

-Using the proportionate interest goodwill method,goodwill on acquisition is: