Question 1

In calculating the proportion of a subsidiary's profit that is attributable to owners who are not part of the group,all adjustments to the group's profit should be treated as affecting the calculation for the outside owners:

Accepted Answer

In calculating the proportion of a subsidiary's profit attributable to non-controlling interests (outside owners), only those adjustments that affect the subsidiary's profit should be considered, not all adjustments to the group's profit.

Question 2

AASB 127 "Consolidated and Separate Financial Statements" prescribes that non-controlling interests be presented in the consolidated statement of financial position as a liability.

Accepted Answer

Non-controlling interests are presented as a separate component of equity, not as a liability, in the consolidated statement of financial position according to AASB 127.

Question 3

Minority interests are 'identified' and eliminated as part of the consolidation process:

Accepted Answer

Minority interests are recognized and presented separately in the consolidated financial statements, not eliminated.

Question 4

Buster Ltd owns 85 per cent of the issued capital of Rhymes Ltd.During the period ended 30 June 2006 the operating profit of Rhymes Ltd was $680,000.Buster Ltd bought goods for $540,000 from Rhymes.The goods cost Rhymes $400,000 and at the end of the period none of this inventory was still on hand.Rhymes paid Buster a management fee of $100,000 during the period.Goodwill on consolidation was impaired by $30,000.Rhymes paid a dividend of $40,000 at the end of the period. What is the minority interest in the operating profit of Rhymes Ltd?
A) $87,000
B) $112,500
C) $102,000
D) $101 969
E) None of the given answers.

Accepted Answer

To calculate the minority interest in the operating profit of Rhymes Ltd, we first need to calculate the profit attributable to the minority interest.

Operating profit of Rhymes Ltd = $680,000 
Profit attributable to the minority interest = 15% of $680,000 = $102,000

Therefore, the correct answer is option C) $102,000.

Question 5

Where the parent entity holds less than 100 per cent interest in a subsidiary,AASB 127 requires the remaining shareholders' interests in what items to be disclosed?
A) The subsidiary's share capital and reserves.
B) The subsidiary's profit or loss.
C) The subsidiary's current and non-current assets.
D) The subsidiary's share capital and reserves and the subsidiary's profit or loss.
E) All of the given answers.

Accepted Answer

AASB 127 requires the disclosure of the subsidiary's share capital and reserves as well as the subsidiary's profit or loss. The remaining shareholders' interests relate to the equity of the subsidiary, which includes share capital and reserves, and the profit or loss of the subsidiary. Therefore, options A, B, and C are partially correct, but only option D includes both items required by AASB 127. Option E is incorrect as it implies that all items need to be disclosed, which is not the case.

Question 6

Parties who are not part of the ownership of the parent entity in a group and who own capital in a company that is a controlled entity in that group are called outside financing interests:

Accepted Answer

Parties who are not part of the ownership of the parent entity in a group and who own capital in a company that is a controlled entity in that group are called minority interests or non-controlling interests, not outside financing interests.

Question 7

Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Accepted Answer

Total comprehensive income is attributed to both the owners of the parent and the non-controlling interests, regardless of whether it results in a deficit balance for the non-controlling interests. This is in accordance with International Financial Reporting Standards (IFRS).

Question 8

In preparing consolidated financial statements minority interests are allocated on a 'line-by-line' basis:

Accepted Answer

Minority interests are not allocated on a 'line-by-line' basis; they are presented as a separate line item in the equity section of the consolidated balance sheet.

Question 9

Finger Ltd purchased 75 per cent of the issued capital and in the process gained control over Nail Ltd on 1 July 2003.The fair value of the net assets of Nail Ltd at purchase was represented by:  Finger Ltd paid cash consideration of $4,000,000 for Nail Ltd.During the period ended 30 June 2005,Nail Ltd paid management fees of $540,000 to Finger Ltd and Nails had an operating profit of $980,000.Nails' opening retained earnings at the beginning of the period were $1,460,000.At the end of the period Nail Ltd declared a dividend of $90,000.There were no other inter-company transactions.Goodwill was determined to have been impaired by $19,000 during the period.Companies in the group accrue dividends when they are declared by subsidiaries.
For the period ended 30 June 2005,what consolidation journal entries are required and what is the minority interest?
A) 
B) 
C) 
D) 
E) None of the given answers.

Accepted Answer

The answer of Finger Ltd purchased 75 per cent of...

Question 10

Calculating goodwill for a subsidiary that has a minority interest involves:
A) Taking the parent entity's share of the fair value of the identifiable net assets of the subsidiary and deducting it from the fair value of the consideration paid.
B) Dividing the fair value of the consideration paid for the subsidiary by the percentage ownership of the parent entity and deducting the fair value of the identifiable net assets of the subsidiary from that amount.
C) Taking the book value of equity of the subsidiary and deducting the fair value of the consideration paid for the subsidiary.
D) Dividing the fair value of the identifiable net assets of the subsidiary by the percentage ownership of the parent entity and deducting this amount from the fair value of the consideration paid.
E) None of the given answers.

Accepted Answer

Taking the parent entity's share of the fair value of the identifiable net assets of the subsidiary and deducting it from the fair value of the consideration paid is the correct method for calculating goodwill for a subsidiary that has a minority interest.

Question 11

Minority interests are shown as equity: that is,as contributors of equity capital to the economic entity:

Accepted Answer

Minority interests are shown as equity in the balance sheet of the parent company, reflecting their contribution to the equity capital of the economic entity. This is done to accurately represent the ownership structure of the company and the value of the minority stake held by external investors.

Question 12

When a subsidiary company that has a minority interest (MI)declares a dividend,the treatment in the consolidated balance sheet of dividends not paid is:
A) The minority interest portion of the dividend owing should be eliminated along with the parent entity's share, leaving a zero balance in dividends payable.
B) The MI's portion should be deducted from the minority interest's share in equity. There should be no dividend amounts remaining in the consolidated balance sheet, but the amount owed to the MI should be disclosed separately.
C) The amount owing to MI as a dividend payable should be included in the consolidated balance sheet as a current liability.
D) The amount of dividends payable to both the parent entity and the MI will be reflected in the consolidated balance sheet.
E) None of the given answers.

Accepted Answer

The amount owing to the minority interest as a dividend payable should be included in the consolidated balance sheet as a current liability, reflecting the obligation to pay the minority shareholders their share of the declared dividends.

Question 13

Minority interests arise when:
A) The parent entity does not control a subsidiary in the group.
B) The parent entity raises capital through preference shares that have the characteristics of debt to fund the subsidiary.
C) The subsidiary has owners of equity who are not owners through their ownership interest in the controlling parent entity.
D) The subsidiary has invested in other entities in which it does not have a controlling interest.
E) None of the given answers.

Accepted Answer

Minority interests arise when a subsidiary has owners of equity who are not owners through their ownership interest in the controlling parent entity. This means that there are shareholders who are not affiliated with the parent company that holds a controlling interest in the subsidiary.

Question 14

AASB 101 "Presentation of Financial Statements" requires a separate line item on the face of the statement of financial position showing the non-controlling interest in equity.

Accepted Answer

AASB 101 requires a separate line item on the face of the statement of financial position showing the non-controlling interest in equity.

Question 15

AASB 101 "Presentation of Financial Statements" requires an entity to disclose separately in the statement of comprehensive income,profit or loss for the period attributable to non-controlling interest and owners of the parent.

Accepted Answer

This statement is true as per AASB 101 "Presentation of Financial Statements". The standard requires an entity to disclose separately in the statement of comprehensive income the profit or loss for the period attributable to the owners of the parent and the non-controlling interest. This helps in providing a clear understanding of the financial performance of the entity to the users of financial statements.

Question 16

Minority interests are allocated on a 'line-by-line' basis throughout the income statement:

Accepted Answer

Minority interests, also known as non-controlling interests, are typically presented as a separate line item in the equity section of the balance sheet and are not allocated on a 'line-by-line' basis throughout the income statement.

Question 17

Under the proprietary concept of consolidation,minority interests are shown as a liability:

Accepted Answer

Under the proprietary concept of consolidation, minority interests are shown as a liability because the parent company only owns a portion of the subsidiary, and the remaining portion belongs to the minority shareholders. Therefore, the portion of the subsidiary's assets and profits belonging to the minority shareholders is shown as a liability on the parent company's consolidated balance sheet.

Question 18

One of the steps in preparing consolidated financial statements is working out the amounts to be attributed to non-controlling interests to determine the amount to be eliminated in the consolidation process.

Accepted Answer

The answer of One of the steps in preparing consolidated...

Question 19

Using full goodwill method,share of goodwill attributable to the non-controlling interests is recognized in the statement of financial position as part of non-controlling interest in equity.

Accepted Answer

Under the full goodwill method, the share of goodwill attributable to the non-controlling interests is recognized in the statement of financial position as a part of non-controlling interest in equity. This is in accordance with International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP).

Question 20

On 1 July 2005 Harry Ltd purchased 80 per cent of the issued share capital of Wills Ltd and has control of Wills.The fair value of the net assets of Wills Ltd on that date was represented as follows:  Harry Ltd paid cash consideration of $2,500,000 for Wills.Wills Ltd made an operating profit of $350,000,there were no intragroup transactions during the period ended 30 June 2006.Goodwill had been determined to have been impaired during the year by $25,000.What consolidation journal entries are required for the period and what is the minority interest in equity as at 30 June 2006?
A) 
B) 
C) 
D) 
E) None of the given answers.

Accepted Answer

The answer of On 1 July 2005 Harry Ltd purchased...

Quiz 30: Further Consolidation Issues II: Accounting for Minority Interests