Question 1

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

In the preparation of consolidated financial statements,the measurement of a non-controlling 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

D

Question 3

Where the full goodwill on acquisition is recognised in the consolidated financial statements,any impairment loss will be allocated between parent interest and NCI on the same basis as profit or loss.

Accepted Answer

When full goodwill on acquisition is recognized in the consolidated financial statements, any impairment loss will be allocated between the parent interest and non-controlling interest (NCI) on the same basis as profit or loss. This means that the impairment loss will be allocated in proportion to the interests held by the parent and the NCI.

Question 4

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

The non-controlling interest in Company B is the percentage of ownership not held by Company A, which is 60%. Therefore, choice B is the correct answer.

Question 5

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 issued capital; as a result, it necessarily has the power to exercise control.
D) none of the above.

Accepted Answer

The correct answer is A because 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, regardless of the percentage of ownership. Control can be achieved through various means, not just holding more than 50% of the voting shares.

Question 6

The consolidation technique of NCI allocation is based on the proposition that non-controlling shareholders have an ownership interest in group equity.

Accepted Answer

The consolidation technique of NCI allocation assumes that non-controlling shareholders have an ownership interest in the group equity, which is why it is necessary to allocate a portion of the consolidated net income and assets to them. This is based on the principle of economic substance over legal form, where the actual economic reality of the investment is more important than its legal structure.

Question 7

If A owns 80% of B and B owns 75% of C,A's ownership interest in B and C is characterised as direct.

Accepted Answer

A's ownership in B is direct, but its ownership in C is indirect, as A owns C through its ownership of B.

Question 8

The measurement of the NCI allocation will be based on the subsidiary company's equity account balances.

Accepted Answer

According to current accounting standards, the NCI allocation is based on the subsidiary company's equity account balances. This is because NCI represents the portion of a subsidiary company's equity that is not owned by the parent company. Therefore, it makes sense to allocate NCI based on the equity account balances in order to accurately reflect the portion of the subsidiary's value that is attributable to NCI.

Question 9

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

Accepted Answer

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

Question 10

Under full consolidation,only the income,expenses,assets,liabilities and equity of wholly owned subsidiaries are included in the consolidated financial statements.

Accepted Answer

Under full consolidation, the income, expenses, assets, liabilities, and equity of both wholly owned and majority-owned subsidiaries are included in the consolidated financial statements, not just those of wholly owned subsidiaries.

Question 11

Under the entity concept of consolidation,the NCI is recognised as a liability.

Accepted Answer

Under the entity concept of consolidation, the Non-Controlling Interest (NCI) is recognized as equity, not as a liability. It represents the portion of the equity in a subsidiary not attributable to the parent company.

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 consist of both the parent entity and the 'outside' subsidiary entity shareholders. The parent entity has ownership and control over the partially-owned subsidiaries, but the outside shareholders still have a stake in those subsidiaries, so their ownership interests are also included in the group's overall ownership structure.

Question 13

The fair value method of measuring NCI includes an amount representing the non-controlling shareholder's interest in goodwill.

Accepted Answer

The fair value method of measuring NCI includes an amount representing the non-controlling shareholder's interest in goodwill. This is because goodwill is a key asset that contributes to the overall value of the entity, and it is important to reflect the NCI's share in this asset.

Question 14

P Ltd purchased 80% of the issued ordinary shares of S Ltd.S Ltd capital structure is: Ordinary shares-200 000 fully paid shares x $1
Preference shares-50 000 fully paid shares x $1
Preference shares have the same rights as ordinary shares.
The NCI in S Ltd is:
A) 20%.
B) 16%.
C) 36%.
D) none of the above.

Accepted Answer

The answer of P Ltd purchased 80% of the issued...

Question 15

Outline how NCI will be disclosed in the consolidated statement of financial position,
statement of comprehensive income and statement of changes in equity.

Accepted Answer

The answer of Outline how NCI will be disclosed in...

Question 16

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, as per the guidance provided by the International Financial Reporting Standards (IFRS). Therefore, option C which states that it can be measured using either A or B is the correct answer. Option D is incorrect as non-controlling interest must be measured and recognized in the financial statements. Option A is incorrect as fair value method is not the only option available for measuring non-controlling interest. Option B is incorrect as proportionate interest goodwill method is an alternative method to fair value method and not the only method.

Question 17

Is the proprietary concept of consolidation consistent with the proportional consolidation method?

Accepted Answer

The answer of Is the proprietary concept of consolidation consistent...

Question 18

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, expenses, 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 19

Accounting Standard AASB 3 Business Combinations allows the choice of measuring NCI using either the fair value method or the proportionate interest method.

Accepted Answer

AASB 3 Business Combinations allows the choice of measuring NCI using either the fair value method or the proportionate interest method.

Question 20

Why does AASB 3 allow a choice in the measurement of NCI at the date of acquisition?

Accepted Answer

The answer of Why does AASB 3 allow a choice...

Quiz 5: Non-Controlling Interest

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

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

Where the full goodwill on acquisition is recognised in the consolidated financial statements,any impairment loss will be allocated between parent interest and NCI on the same basis as profit or loss.

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

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

The consolidation technique of NCI allocation is based on the proposition that non-controlling shareholders have an ownership interest in group equity.

If A owns 80% of B and B owns 75% of C,A's ownership interest in B and C is characterised as direct.

The measurement of the NCI allocation will be based on the subsidiary company's equity account balances.

Which of the following statements is correct?

Under full consolidation,only the income,expenses,assets,liabilities and equity of wholly owned subsidiaries are included in the consolidated financial statements.

Under the entity concept of consolidation,the NCI is recognised as a liability.

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

The fair value method of measuring NCI includes an amount representing the non-controlling shareholder's interest in goodwill.

P Ltd purchased 80% of the issued ordinary shares of S Ltd.S Ltd capital structure is: Ordinary shares-200 000 fully paid shares x $1 Preference shares-50 000 fully paid shares x $1 Preference shares have the same rights as ordinary shares. The NCI in S Ltd is:

Outline how NCI will be disclosed in the consolidated statement of financial position, statement of comprehensive income and statement of changes in equity.

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

Is the proprietary concept of consolidation consistent with the proportional consolidation method?

Consistent with the entity concept,full consolidation requires that:

Accounting Standard AASB 3 Business Combinations allows the choice of measuring NCI using either the fair value method or the proportionate interest method.

Why does AASB 3 allow a choice in the measurement of NCI at the date of acquisition?