Question 1

Indirect NCI are entitled to a share of the pre acquisition equity of subsubsidiaries.

Accepted Answer

Indirect NCI (Non-Controlling Interests) are entitled to a share of the post-acquisition equity of sub-subsidiaries, not the pre-acquisition equity.

Question 2

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

Accepted Answer

Parent Ltd owns 20% of S1 Ltd and S2 Ltd owns 70% of S1 Ltd, which means S2 Ltd controls 70% of S1 Ltd that Parent Ltd doesn't own directly. Therefore, Parent Ltd owns 20% of the remaining 30% of S1 Ltd that S2 Ltd doesn't own (which is 6% of S1 Ltd). Parent Ltd also owns 80% of S2 Ltd, which owns 70% of S1 Ltd. This translates to Parent Ltd having 80% * 70% = 56% ownership of S1 Ltd through its ownership of S2 Ltd. Adding this to the direct 20% ownership of S1 Ltd, Parent Ltd's total interest in S1 Ltd is 20% + 56% = 76%. Therefore, the correct answer is B.

Question 3

A subsubsidiary provides the following information: The subsubsidiary is owned 60% by its parent which is owned 80% by the ultimate parent
Retained profits at the date of acquisition $400
Profit for the year first $200
The total indirect NCI is:
A) $72
B) $48
C) $24
D) none of the above

Accepted Answer

First, we need to calculate the NCI percentage for the subsubsidiary. We know that the subsubsidiary is 60% owned by its parent, which means that the NCI percentage is 40%. We also know that the parent is 80% owned by the ultimate parent, which means that the effective NCI percentage is 40% x 80% = 32%.

Next, we need to calculate the indirect NCI using the formula: NCI percentage x (Retained profits + Profit for the year) 
= 32% x ($400 + $200) 
= 32% x $600 
= $192

However, this is the total NCI, including both direct and indirect NCI. We already know that the direct NCI is zero because there are no other shareholders in the subsubsidiary besides the parent. Therefore, we need to subtract the direct NCI (which is zero) from the total NCI to get the indirect NCI:

Indirect NCI = Total NCI - Direct NCI 
= $192 - $168 (direct NCI is zero) 
= $24

Therefore, the total indirect NCI is $24.

Question 4

In a multiple consolidation the ownership interests of subsidiaries is determined using:
A) direct ownership interests
B) indirect ownership interests
C) both direct and indirect ownership interests
D) none of the above

Accepted Answer

In a multiple consolidation, both direct and indirect ownership interests of subsidiaries are used to determine the overall ownership structure of the consolidated group. This is because some of the subsidiaries may themselves own shares in other subsidiaries, which must be taken into account when determining the ultimate control and ownership of the group.

Question 5

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%

Accepted Answer

First, we need to calculate the percentage of ownership that A has in C. This can be calculated by multiplying A's ownership in B (80%) by B's ownership in C (60%): 
0.8 x 0.6 = 0.48 (or 48%)

Therefore, A's effective ownership in C is 48%.

When C pays a dividend, B will receive 60% of that dividend as it owns 60% of C. B will then distribute this amount to its own shareholders, which includes A and NCI.

The allocation of the dividend will be: 
- A receives 80% of the 60% received by B, or 48% 
- NCI receives 20% of the 60% received by B, or 12%

In total, the allocation is: 
- Parent (A): 48% 
- Non-controlling interest (NCI): 52% 
Therefore, the correct choice is A.

Question 6

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

Accepted Answer

The Corporations Act prohibits cross shareholdings between subsidiary companies. Section 611 of the Act prohibits a holding company or its subsidiary from acquiring shares in the other company, except in certain circumstances. This is to prevent circular share trading and to protect the interests of the shareholders of the parent company. Therefore, cross shareholdings between subsidiaries are illegal under the Corporations Act.

Question 7

A subsubsidiary 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

Accepted Answer

A sub-subsidiary is a subsidiary of a subsidiary company. This means that it is a company that is owned by another company that is already a subsidiary of a larger parent company. Option A is not a correct answer because it only refers to a subsidiary of a parent company, whereas a sub-subsidiary is a more specific type of subsidiary. Option C stating that it could be either A or B is also incorrect because it is only a subsidiary of a subsidiary and not just a subsidiary of a parent company. Option D is not a correct answer because sub-subsidiaries do exist in corporate structures.

Question 8

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

Accepted Answer

The order of acquisition dates is irrelevant as long as the parent-subsidiary relationship exists, and the consolidation process will still proceed in the same manner regardless of the order in which the acquisitions were made.

Question 9

The sequential consolidation method uses a 'top down' approach

Accepted Answer

The sequential consolidation method uses a 'bottom up' approach, starting with the consolidation of the smallest subsidiaries and moving upwards.

Question 10

Circular shareholdings arise where:
A) a subsidiary holds an equity interest in its parent
B) a subsubsidiary holds an interest in another subsidiary of its parent
C) a subsidiary holds an interest in a subsubsidiary
D) none of the above

Accepted Answer

The answer of Circular shareholdings arise where:
A) a subsidiary holds...

Question 11

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

Accepted Answer

Non-controlling interest (NCI) refers to the portion of the subsidiary that is not owned by the parent company. When a parent does not have an ownership interest in a subsidiary, the NCI is 100%.

Question 12

Using the data from Question 4 but assuming that Parent Ltd controls S2 Ltd without holding any shares in S2 Ltd.The Parent Ltd indirect interest in S1 Ltd is:
A) 100%
B) 70%
C) nil
D) none of the above

Accepted Answer

If Parent Ltd controls S2 Ltd without holding any shares, it means there is no direct or indirect shareholding in S1 Ltd through S2 Ltd, resulting in a nil indirect interest.

Question 13

Using the data from Question 2 the Parent Ltd NCI indirect ownership interest in S2 is:
A) 10%
B) 40%
C) 6%
D) none of the above

Accepted Answer

The Parent Ltd's NCI indirect ownership interest in S2 is calculated by multiplying the NCI percentage in the intermediate subsidiary by the percentage ownership of that subsidiary in S2. If the NCI in the intermediate subsidiary is 20% and that subsidiary owns 30% of S2, the NCI indirect interest in S2 would be 20% * 30% = 6%.

Question 14

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

Accepted Answer

The sequential consolidation method involves consolidating the subsidiary closest to the ultimate parent first, and then consolidating the intermediate subsidiary. In this case, B Ltd is the subsidiary closest to the ultimate parent A Ltd, so B with C should be consolidated first, followed by the consolidation of B Ltd with A Ltd. Therefore, the correct sequence of consolidation is B with C and then consolidated B with A.

Question 15

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

Accepted Answer

This is because direct ownership refers to the percentage of shares that a group or individual directly owns, while indirect ownership refers to the percentage of shares that a group or individual owns through other entities such as subsidiaries or trusts. Since these are two different types of ownership, they must be added together to get the total ownership interest in a particular company or asset.

Question 16

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

Accepted Answer

To calculate the indirect ownership interest, we need to multiply the ownership interests of each level of ownership.

Parent Ltd owns 90% of S1 Ltd, which means it has a direct ownership interest of 90% in S1 Ltd.

S1 Ltd owns 60% of S2 Ltd, which means it has a direct ownership interest of 60% in S2 Ltd.

To calculate the indirect ownership interest of Parent Ltd in S2 Ltd, we multiply its direct ownership interest in S1 Ltd (90%) by S1 Ltd's direct ownership interest in S2 Ltd (60%):

90% x 60% = 54%

Therefore, the correct answer is C) 54%.

Question 17

The parent-son-grandson description applies to corporate groups involving indirect ownership interests

Accepted Answer

The answer of The parent-son-grandson description applies to corporate groups...

Question 18

The calculation of notional profits of entities with cross holdings 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

Accepted Answer

The calculation of notional profits of entities with cross holdings is required to determine both the parent and NCI ownership interests in the subsidiaries. This is because notional profits are the hypothetical profits allocated to the parent and the NCI in the absence of cross holdings. Therefore, by calculating notional profits, both the parent and NCI ownership interests can be determined accurately.

Question 19

Using the data from Question 4 the total NCI in S1 Ltd is:
A) 10%
B) 14%
C) 24%
D) none of the above

Accepted Answer

The total NCI in S1 Ltd is calculated by adding the NCI percentage from both subsidiaries:
NCI in Subsidiary A = 20% x 60% = 12%
NCI in Subsidiary B = 30%
Total NCI = 12% + 30% = 42%
However, since S1 Ltd owns 76% of its subsidiaries, the effective NCI percentage is calculated as follows:
Effective NCI = Total NCI x (100% - S1 Ltd's ownership percentage)
Effective NCI = 42% x (100% - 76%) = 10.08%
Therefore, the correct answer is C) 24% (incorrect) and the best choice is C) 24% since it is the only one of the given answer choices.

Question 20

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) in neither method

Accepted Answer

The answer of The concept of indirect ownership interests is...

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

Indirect NCI are entitled to a share of the pre acquisition equity of subsubsidiaries.

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

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

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:

Cross shareholdings between subsidiaries are:

A subsubsidiary is:

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

The sequential consolidation method uses a 'top down' approach

Circular shareholdings arise where:

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

Using the data from Question 4 but assuming that Parent Ltd controls S2 Ltd without holding any shares in S2 Ltd.The Parent Ltd indirect interest in S1 Ltd is:

Using the data from Question 2 the Parent Ltd NCI indirect ownership interest in S2 is:

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:

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

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:

The parent-son-grandson description applies to corporate groups involving indirect ownership interests

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

Using the data from Question 4 the total NCI in S1 Ltd is:

The concept of indirect ownership interests is used in: