Phillip Limited has an ownership interest of 75% in a subsidiary Jacob Limited. Jacob Limited owns 80% of Baxter Limited. At acquisition date the retained earnings of Baxter Limited were $300 000. At consolidation date, the retained earnings of Baxter Limited were $840 000. The indirect non-controlling interest in the retained earnings of Baxter Limited is:

Question

Quizplus · Accepted Answer

The indirect non-controlling interest in the retained earnings of Baxter Limited can be calculated by considering the ownership structure. Phillip Limited owns 75% of Jacob Limited, which in turn owns 80% of Baxter Limited. This means the non-controlling interest (NCI) in Jacob Limited is 25%, and the NCI in Baxter Limited through Jacob Limited is 20%. The indirect NCI in Baxter Limited's retained earnings is the portion of Baxter's retained earnings attributable to the NCI in Jacob Limited. This is calculated as 25% (NCI in Jacob Limited) of 20% (NCI in Baxter Limited through Jacob Limited) of Baxter Limited's retained earnings at the consolidation date ($840,000), which is 0.25 * 0.20 * $840,000 = $42,000. However, the question asks for the indirect NCI in the change in retained earnings from the acquisition date to the consolidation date, which is $840,000 - $300,000 = $540,000. Therefore, the correct calculation is 0.25 * 0.20 * $540,000 = $27,000. It appears there was a mistake in my explanation regarding the calculation of the indirect non-controlling interest. The correct approach to calculate the indirect non-controlling interest in the retained earnings of Baxter Limited should consider the entire retained earnings at the consolidation date and the ownership percentages directly, without subtracting the retained earnings at the acquisition date. The indirect NCI is calculated based on the total retained earnings at the consolidation date and the ownership structure.

Phillip Limited Has an Ownership Interest of 75% in a Subsidiary