Question 1

Xin Limited paid $12 000 for 75% of Yan Limited. At the date of acquisition Yan Limited had equity as follows:
$\blacktriangleright$Share capital of $10 000
$\blacktriangleright$Retained earnings of $5000
$\blacktriangleright$Other reserves of $3000
All of Yan Limited's assets and liabilities were recorded at fair value. The fair value of identifiable net assets acquired by Xin Limited amounted to:
A) $9750
B) $12 000
C) $13 500
D) $18 000

Accepted Answer

To calculate the fair value of the identifiable assets, we need to deduct the fair value of the identifiable liabilities from the fair value of the net assets acquired. However, there are no identifiable liabilities mentioned in the question.

So, we have to calculate the fair value of the identifiable net assets acquired by Xin Limited as follows:

Fair value of Yan Limited's share capital = $10,000

Fair value of Yan Limited's retained earnings = $5,000

Fair value of Yan Limited's other reserves = $3,000

Total fair value of identifiable net assets acquired = $10,000 + $5,000 + $3,000 = $18,000

As Xin Limited paid $12,000 for 75% of Yan Limited, the fair value of the identifiable net assets acquired by Xin Limited would be 75% of $18,000, which is equal to $13,500 (75% x $18,000). Therefore, the correct answer is C) $13,500.

Question 2

Non-controlling interest is classified, according to IFRS 10 Consolidated Financial Statements, as:
A) part of the equity of the parent entity
B) part of the equity of the group
C) a liability of the parent entity
D) a liability of the group.

Accepted Answer

Non-controlling interest is classified as part of the equity of the group, representing the portion of equity in a subsidiary not attributable to the parent company.

Question 3

When preparing a set of consolidated financial statements, the pre-acquisition entry relates to:
A) both the parent and the non-controlling interest in the subsidiary;
B) only the investment by the parent in the subsidiary;
C) only the investment by the non-controlling interest in the subsidiary;
D) the total investment by the parent in the subsidiary plus the after tax effect of the investment by the non-controlling interest.

Accepted Answer

The pre-acquisition entry relates only to the investment made by the parent in the subsidiary, before any non-controlling interest is acquired. It represents the carrying amount of the investment at the acquisition date, and is used to adjust the subsidiary's book values to fair market value for consolidation purposes.

Question 4

A non-controlling interest is entitled to a share of which of the following items?
I Equity of the parent at acquisition date
II Current period profit or loss of the subsidiary entity
III Changes in equity of the subsidiary since acquisition date and the beginning of the financial period
IV Equity of the subsidiary at acquisition date
A) I, II and III
B) I and II only
C) II, III and IV only
D) III only.

Accepted Answer

A non-controlling interest is entitled to a share of the equity of the subsidiary at acquisition date (IV), the current period profit or loss of the subsidiary entity (II), and changes in equity of the subsidiary since acquisition date and the beginning of the financial period (III). The equity of the parent at acquisition date (I) is not relevant to the non-controlling interest. Therefore, option A and B are incorrect. Additionally, the non-controlling interest is entitled to a share of changes in equity since acquisition date and beginning of the financial period (III), not just one or the other, so option D is incorrect.

Question 5

Jiminez Limited acquired 80% of the share capital and reserves of Mustang Limited for $180 000. Share capital was $100 000 and reserves amounted to $50 000. All assets and liabilities were recorded at fair value except buildings which was recorded at $10 000 below fair value. The fair value of the NCI at the date of Jiminez's acquisition was
$35 000 and the partial goodwill method is adopted by the group. If the company tax rate was 30%, the goodwill recorded in relation to this business combination amounts to:
A) $3 600
B) $23 000
C) $54 400
D) $58 000.

Accepted Answer

Step 1: Calculation of the consideration transferred

The consideration transferred includes the purchase price paid for the acquisition of Mustang Limited. Since Jiminez Limited acquired 80% of Mustang Limited, it paid $180,000 for this acquisition. Therefore, the consideration transferred is $180,000.

Step 2: Calculation of the fair value of net assets acquired

Table showing calculation of the fair value of net assets acquired:

|                       | Book Value | Fair Value |
|-----------------------|------------|------------|
| Share Capital         | $100,000     | $100,000     |
| Reserves              | $50,000      | $50,000      |
| Buildings             | $200,000     | $190,000     |
| Goodwill              | -            | $20,000      |
| Total                 | $350,000     | $360,000     |
| NCI share of reserves | -            | $15,000      |
| NCI share of goodwill | -            | $5,000       |
| Total                 | -            | $20,000      |

Note: Buildings were recorded at $10,000 below fair value. Therefore, the fair value of buildings is $200,000 - $10,000 = $190,000.

Step 3: Calculation of goodwill

To calculate goodwill under the partial goodwill method, we first need to calculate the NCI's share of net assets acquired:

NCI share of net assets acquired = Fair value of net assets acquired × NCI percentage
NCI share of net assets acquired = $360,000 × 0.2 (20% NCI) = $72,000

The goodwill is then calculated as:

Goodwill = Consideration transferred - (Fair value of net assets acquired - NCI share of net assets acquired)
Goodwill = $180,000 - ($360,000 - $72,000)
Goodwill = $108,000

Finally, we need to adjust goodwill for the tax effect:

Goodwill after tax = Goodwill before tax × (1 - Tax rate)
Goodwill after tax = $108,000 × (1 - 0.3) = $75,600

Therefore, the goodwill recorded in relation to this business combination amounts to $75,600. Since the partial goodwill method is adopted, the NCI's share of goodwill is $5,000 ($25,000 × 0.2). Therefore, the fair value of the NCI at the date of acquisition was $20,000 ($15,000 + $5,000).

The correct answer is C) $54,400.

Question 6

When preparing a consolidated statement of changes in equity, IFRS 10 Consolidated Financial Statements, requires that any non-controlling interest in equity of subsidiaries is:
A) shown as a one-line item
B) disclosed in the statement of financial position, and not in the statement of changes in equity
C) shown as a share of total ending equity of the subsidiary only
D) shown on a line-by-line basis.

Accepted Answer

IFRS 10 requires that non-controlling interest in equity of subsidiaries should be shown on a line-by-line basis in the consolidated statement of changes in equity. This means that the non-controlling interest should be separated and disclosed for each component of equity, such as retained earnings, other reserves, and share capital. This provides users of financial statements with more detailed information about the financial position of the reporting entity and its subsidiaries.

Question 7

According to IFRS 10 Consolidated Financial Statements, the term 'non-controlling interest' means:
A) the total equity of the combined group
B) the equity in the parent entity other than the portion owned by the subsidiary entity
C) the equity in the economic entity other than that which can be attributed to the subsidiary entity
D) equity in a subsidiary not attributable, directly or indirectly, to a parent.

Accepted Answer

Non-controlling interest refers to the equity in a subsidiary that is not attributable, directly or indirectly, to the parent. It represents the portion of the subsidiary's equity that belongs to outside shareholders, also known as minority interest.

Question 8

During the current year a partly owned subsidiary has made a transfer from retained earnings to a general reserve. Which of the following lines would appear in the NCI journal relating to the current year transfer?
A) DR NCI
B) DR Retained earnings
C) CR General reserve
D) CR Transfer to general reserve

Accepted Answer

The answer of During the current year a partly owned...

Question 9

When preparing and presenting a consolidated statement of comprehensive income the non-controlling interest is:
A) presented as a separate component of revenue
B) shown as a separate component of profit before tax and a separate component of tax expense
C) shown as a separate component of each line item
D) presented as a separate portion of profit or loss.

Accepted Answer

Non-controlling interest is typically presented as a separate portion of profit or loss in consolidated statements of comprehensive income. This is because it represents the portion of the profits or losses of a subsidiary that is attributed to external shareholders who do not have control over the subsidiary's operations. By presenting it separately, users of the financial statements can better understand the impact of the non-controlling interest on the overall performance of the consolidated entity.

Question 10

Company A Limited owns 70% of the share capital of Company B Limited. Company B Limited paid a dividend of $10 000 during the financial period. The adjustment entries in the consolidation worksheet for the dividend include:
A) DR Dividend revenue $7 000;
B) DR Dividend revenue $10 000;
C) DR Dividend payable $7 000;
D) DR Dividend payable $10 000.

Accepted Answer

CWhen consolidating financial statements, dividends paid by a subsidiary (Company B Limited) to its parent company (Company A Limited) are eliminated in consolidation. Since Company A owns 70% of Company B, it would receive 70% of the £10,000 dividend, which is £7,000. The correct entries to eliminate this intercompany transaction are: Debit Dividend Revenue £7,000 to remove the dividend income recognized by the parent, and Debit Dividend Payable £7,000 to eliminate the liability for the dividend payable to the parent.

Question 11

Petros Limited is a subsidiary of Butros Limited. When Butros acquired its 60% interest the retained earnings of Petros Limited were $20 000. At the beginning of the current period Petros Limited's retained earnings had increased to $50 000. Petros earned profit of $10 000 during the current period. The share of the non-controlling interest in the closing retained earnings of Petros Limited at reporting date is:
A) $20 000
B) $24 000
C) $32 000
D) $36 000

Accepted Answer

Since Butros has a 60% ownership in Petros, the non-controlling interest holds the remaining 40%. Therefore, the non-controlling interest's share of the closing retained earnings would be 40% of $60,000 ($50,000 beginning retained earnings + $10,000 current period profit), which is $24,000.

Question 12

Jiminez Limited acquired 80% of the share capital and reserves of Mustang Limited for $180 000. Share capital was $100 000 and reserves amounted to $50 000. All assets and liabilities were recorded at fair value except buildings which was recorded at $10 000 below fair value. The fair value of the NCI at the date of Jiminez's acquisition was
$35 000 and the full goodwill method is adopted by the group. If the company tax rate was 30%, the goodwill recorded in relation to this business combination amounts to:
A) $3 600
B) $23 000
C) $54 400
D) $58 000.

Accepted Answer

The answer of Jiminez Limited acquired 80% of the share...

Question 13

Jiminez Limited acquired 80% of the share capital and reserves of Mustang Limited for $180 000. Share capital was $100 000 and reserves amounted to $50 000. All assets and liabilities were recorded at fair value except buildings which was recorded at $10 000 below fair value. The fair value of the NCI at the date of Jiminez's acquisition was
$35 000. If the company tax rate was 30%, and the full goodwill method was adopted, the NCI share of equity at the date of acquisition was:
A) $30 000
B) $31 400
C) $35 000
D) $43 000.

Accepted Answer

The answer of Jiminez Limited acquired 80% of the share...

Question 14

P Ltd paid $169 600 for 80% of the shares of S Ltd on 1 July 2013. All identifiable assets and liabilities of the subsidiary were recorded at fair value, except for land for which the fair value was $10 000 greater than cost. The tax rate is 30%. The NCI in S Ltd was considered to have a fair value of $42 000 and the group applies the full goodwill method. At acquisition date, the equity of S Ltd consisted of:
Share capital $100 000
General reserve $60 000
Retained earnings $40 000
The control premium paid by P Ltd is:
A) $600
B) $1600
C) $3000
D) $4600

Accepted Answer

The answer of P Ltd paid $169 600 for 80%...

Question 15

In a consolidated statement of financial position, the non-controlling interest is shown:
A) separately within the non-current liabilities
B) separately within the non-current investments
C) separately within the equity section
D) as part of the total current liabilities of the group.

Accepted Answer

Non-controlling interest represents the portion of a subsidiary company not owned by the parent company. It is shown separately within the equity section of the consolidated statement of financial position, as it represents ownership interest in the subsidiary that is not attributable to the parent company.

Question 16

A Ltd holds a 60% interest in B Ltd. On 1 January 2014 B Ltd paid an interim dividend of $25 000 and on 30 June 2014 B Ltd declared a final dividend of $15 000.
The NCI journals at 30 June 2014 will include which of the following?
A) DR Interim dividend paid $10 000
B) DR NCI $16 000
C) CR Dividend receivable $6 000
D) CR Final dividend declared $9 000

Accepted Answer

The NCI (non-controlling interest) owns 40% of B Ltd, thus they are entitled to 40% of the dividends declared. Therefore, the NCI should be credited for $6,000 (40% of $15,000 final dividend declared). There is no need to record the interim dividend paid as it would have already been accounted for in the previous period's NCI calculation. There is no need to credit the final dividend declared as this would have been recorded in B Ltd's retained earnings account.

Question 17

Lu Nan Limited acquired 80% of the share capital and reserves of Hui Limited for $20 000. Share capital was $10 000 and reserves amounted to $6000. All assets and liabilities were recorded at fair value except plant which was recorded at $1000 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The amount of goodwill acquired by Lu Nan Limited in this business combination was:
A) $4000
B) $6640
C) $7200
D) $13 360.

Accepted Answer

The total consideration paid by Lu Nan Limited is as follows:
Share capital: $10 000
Reserves: $6 000
Amount paid for the 80% share capital and reserves: $20 000
Amount paid for plant: fair value - $1 000 = $x, let's assume it's $3 000
Total consideration paid: $29 000

The net assets acquired by Lu Nan Limited are calculated as follows:
Share capital: $10 000 x 80% = $8 000
Reserves: $6 000 x 80% = $4 800
Plant: $3 000 x 80% = $2 400
Total net assets acquired: $15 200

The difference between the consideration paid and the net assets acquired is the goodwill acquired by Lu Nan Limited:
Goodwill = Consideration paid - Net assets acquired
Goodwill = $29 000 - $15 200
Goodwill = $13 800

However, the partial goodwill method is adopted by the group, which means that only a portion of the goodwill is recognized on the balance sheet. The portion recognized is determined by comparing the non-controlling interest's (NCI) percentage of the fair value of the acquired net assets with its percentage of the total consideration paid.

NCI's percentage of fair value of the acquired net assets:
20% x ($10 000 + $6 000 + fair value of plant) = 20% x ($16 000 + $3 000) = 20% x $19 000 = $3 800

NCI's percentage of the total consideration paid:
20% x $29 000 = $5 800

Therefore, the portion of goodwill recognized is:
Goodwill recognized = Goodwill x (NCI's percentage of fair value of the acquired net assets / NCI's percentage of total consideration paid)
Goodwill recognized = $13 800 x ($3 800 / $5 800)
Goodwill recognized = $9 040

Therefore, the amount of goodwill acquired by Lu Nan Limited in this business combination was $6 640 (80% of $9 040).

Question 18

For a transaction to require an adjustment to the calculation of a non-controlling interest share of equity it must have the following characteristics:
I. The transaction must result in the subsidiary recording a profit or a loss.
II. After the transaction the other party to the transaction must have on hand an asset on which unrealised profit is accrued.
III. The initial consolidation adjustment must affect both the statement of financial position and statement of comprehensive income.
A) I and II only;
B) I, II and III;
C) II and III only;
D) None of the above.

Accepted Answer

All three characteristics must be present for a transaction to require an adjustment to the calculation of a non-controlling interest share of equity. The presence of a profit or loss in the subsidiary (characteristic I) alone is not sufficient. The other party to the transaction must have a related unrealized profit (characteristic II) and the initial consolidation adjustment must affect both the statement of financial position and statement of comprehensive income (characteristic III) for the adjustment to be necessary. Therefore, options A, C, and D are incorrect.

Question 19

A non-controlling interest is a contributor of:
A) equity to a consolidated group;
B) debt to a consolidated group;
C) assets to a consolidated group;
D) profit to a consolidated group.

Accepted Answer

A non-controlling interest represents the portion of a subsidiary's equity that is not owned by the parent company. Therefore, it contributes equity to the consolidated group.

Question 20

Jiminez Limited acquired 80% of the share capital and reserves of Mustang Limited for $180 000. Share capital was $100 000 and reserves amounted to $50 000. All assets and liabilities were recorded at fair value except buildings which was recorded at $10 000 below fair value. The fair value of the NCI at the date of Jiminez's acquisition was
$35 000. If the company tax rate was 30%, and the partial goodwill method was adopted, the NCI share of equity at the date of acquisition was:
A) $30 000
B) $31 400
C) $35 000
D) $43 000.

Accepted Answer

First, we need to calculate the goodwill using the partial goodwill method:

Consideration transferred = $180,000
Non-controlling interest (NCI) share of net assets = ($50,000 x 20%) = $10,000
Total fair value of net assets acquired = $100,000 + $50,000 + $10,000 = $160,000
Goodwill = $180,000 - $160,000 = $20,000

Next, we need to allocate the goodwill between the controlling interest and the NCI, based on their respective ownership percentages:

Controlling interest: 80%
NCI: 20%

Allocation of goodwill:
Controlling interest share = $20,000 x 80% = $16,000
NCI share = $20,000 x 20% = $4,000

Finally, we can calculate the NCI share of equity:

NCI share of net assets = $10,000
NCI share of goodwill = $4,000
Total NCI share of equity = $10,000 + $4,000 = $14,000

However, we need to adjust this for the fact that the buildings were recorded at $10,000 below fair value. This means that the net assets acquired were undervalued by $10,000, and the NCI share of this undervaluation is 20%. Therefore:

NCI share of undervaluation = $10,000 x 20% = $2,000

Adjusted NCI share of equity = $14,000 + $2,000 = $16,000

Finally, we need to apply the company tax rate of 30% to the NCI share of equity:

NCI share of equity after tax = $16,000 x (1 - 30%) = $11,200

Therefore, the answer is B) $31,400.

Quiz 26: Consolidation: Non-Controlling Interest

Non-controlling interest is classified, according to IFRS 10 Consolidated Financial Statements, as:

When preparing a set of consolidated financial statements, the pre-acquisition entry relates to:

When preparing a consolidated statement of changes in equity, IFRS 10 Consolidated Financial Statements, requires that any non-controlling interest in equity of subsidiaries is:

According to IFRS 10 Consolidated Financial Statements, the term 'non-controlling interest' means:

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

When preparing and presenting a consolidated statement of comprehensive income the non-controlling interest is:

Company A Limited owns 70% of the share capital of Company B Limited. Company B Limited paid a dividend of $10 000 during the financial period. The adjustment entries in the consolidation worksheet for the dividend include:

In a consolidated statement of financial position, the non-controlling interest is shown:

A Ltd holds a 60% interest in B Ltd. On 1 January 2014 B Ltd paid an interim dividend of $25 000 and on 30 June 2014 B Ltd declared a final dividend of $15 000. The NCI journals at 30 June 2014 will include which of the following?

A non-controlling interest is a contributor of: