Question 1

Viner Ltd. acquired 70% of Bittner Ltd. on January 1, 2010. On January 1, 2014, Viner acquired another 10% of Bittner's common shares for $250,000. With respect to this additional purchase, which of the following is TRUE?

Accepted Answer

B

Question 2

Under the partial goodwill method, the NCI is measured as a proportion of the net fair value of the identifiable net assets of the subsidiary at the acquisition date.

Accepted Answer

This statement is true. Under the partial goodwill method, the non-controlling interest (NCI) is measured as a proportion of the net fair value of the identifiable net assets of the subsidiary at the acquisition date. This means that the NCI is essentially treated as a separate entity with its own share of the fair value of the subsidiary's assets and liabilities. The proportion is calculated based on the percentage of ownership held by the NCI, which is then subtracted from the fair value of the net assets to obtain the implied fair value of the controlling interest.

Question 3

All intragroup transactions require an adjustment to the NCI.

Accepted Answer

Not all intragroup transactions require an adjustment to the Non-Controlling Interest (NCI). Adjustments to NCI are necessary only when the transactions affect the ownership interest of the non-controlling shareholders in the subsidiary.

Question 4

A parent's consolidated net income which includes it's fully and partially owned subsidiaries is best described as:

Accepted Answer

The answer of A parent's consolidated net income which includes...

Question 5

The NCI consists of the accumulation of all the interests in the subsidiary other than that belonging to the parent.

Accepted Answer

NCI stands for Non-Controlling Interest, which represents the portion of a subsidiary's equity ownership that is not owned by the parent company. Therefore, the NCI consists of all the interests in the subsidiary other than that belonging to the parent.

Question 6

In the rare case where a gain on bargain purchase may arise, such a gain has no effect on the calculation of the NCI share of equity.

Accepted Answer

A gain on bargain purchase arises when the purchase price of a subsidiary is less than its fair value. This gain is recognized in the consolidated statement of comprehensive income and attributed to the controlling interest. It does not affect the calculation of the NCI share of equity, as NCI represents a portion of the subsidiary's equity that is not attributable to the parent company. Therefore, the answer is A, true.

Question 7

When preparing and presenting a consolidated statement of comprehensive income, the non-controlling interest is presented as a separate component of revenue.

Accepted Answer

The non-controlling interest is presented as a separate component of equity in the consolidated statement of comprehensive income, not as a separate component of revenue.

Question 8

There are three main concepts of consolidation - proprietary, entity and parent entity.

Accepted Answer

This is correct, there are indeed three main concepts of consolidation - proprietary consolidation which involves merging all subsidiaries into a parent company, entity consolidation which involves consolidating multiple entities that are related but not fully owned, and parent entity consolidation which involves consolidating a parent company's financial statements with its subsidiaries.

Question 9

Which consolidation method does NOT include incorporating 100% of a subsidiary's revenues and expenses?

Accepted Answer

Proportional consolidation only includes incorporating a proportionate share of the subsidiary's revenues and expenses. The other options (parent-company method, parent-company extension method, and entity method) all involve incorporating 100% of the subsidiary's revenues and expenses.

Question 10

Under the partial goodwill method, the NCI does not get a share of any equity relating to goodwill.

Accepted Answer

Under the partial goodwill method, the NCI does not get a share of any equity relating to goodwill.

Question 11

What is the purpose of showing an allocation of the net income between the parent and the subsidiary companies on the consolidated statement of comprehensive income?

Accepted Answer

The answer of What is the purpose of showing an...

Question 12

The proprietary concept is sometimes referred to as proportional consolidation or pro rata consolidation.

Accepted Answer

The proprietary concept is indeed sometimes referred to as proportional consolidation or pro rata consolidation.

Question 13

Under the entity concept of consolidation, the group consists of the combined assets and liabilities of the parent and the subsidiary.

Accepted Answer

Under the entity concept of consolidation, the group is treated as a single economic entity, and therefore the combined assets and liabilities of the parent and the subsidiary are brought together to form the consolidated financial statements.

Question 14

If a gain on bargain purchase arises on a business combination, the non-controlling interest is allocated 100% of the gain.

Accepted Answer

If a gain on bargain purchase arises on a business combination, the gain is recognized in full by the acquirer and is not allocated to the non-controlling interest. Therefore, the non-controlling interest does not receive any portion of the gain.

Question 15

Whereas the goodwill of the subsidiary may be determined by calculating the goodwill acquired by the parent entity and then adding the fair value of the NCI, this process is not applicable for a gain on bargain purchase.

Accepted Answer

In a gain on bargain purchase, the purchase price is less than the fair value of the net assets acquired, resulting in no goodwill being recognized. Instead, a gain is recorded in the income statement.

Question 16

Levi Ltd. owns 60% of the outstanding common shares of Modry Ltd. During 2013, sales from Modry to Levi were $200,000. Merchandise was priced to provide Modry with a gross margin of 20%. Levi's inventories contained $40,000 at December 31, 2012 and $15,000 at December 31, 2013 of merchandise purchased from Modry. Cost of goods sold for Levi and Modry for 2013 on their separate-entity income statements were as follows: $\begin{array}{|l|r|r|} 
\hline& \text { Levi } & \text { Modry } \
\hline \text { Beginning inventory } & \$ 100,000 & \$ 50,000 \
\hline \text { Purchases } & 700,000 & 200,000 \
\hline \text { Ending inventory } & (110,000) & (55,000) \
\hline \text { Cost of goods sold } & \$ 690,000 & \$ 195,000 \
\hline
\end{array}$ What is the balance of the inventory account on Levi's consolidated statement of financial position at December 31, 2013?

Accepted Answer

The consolidated inventory balance is the sum of the separate entity inventory balances, plus the unrealized gross profit on intercompany sales. The unrealized gross profit is calculated as the difference between the sales price and the cost of goods sold on the intercompany sales. In this case, the sales price is $200,000 and the cost of goods sold is $160,000 (20% gross margin on $200,000). Therefore, the unrealized gross profit is $40,000. The consolidated inventory balance is therefore $160,000 (Levi's inventory balance) + $15,000 (Modry's inventory balance) + $40,000 (unrealized gross profit) = $162,000.

Question 17

Ownership interests in a subsidiary entity that do not belong to the parent entity are known as un-owned interests.

Accepted Answer

Ownership interests in a subsidiary entity that do not belong to the parent entity are not known as un-owned interests. Instead, they may be owned by third-party investors or other entities.

Question 18

What is the recommended method for disclosing a non-controlling interest in a company on a consolidated balance sheet where significant sales have occurred between the two companies?

Accepted Answer

The non-controlling interest should be disclosed in shareholder's equity on the consolidated balance sheet because it represents the amount of ownership that the parent company does not have. This is typically shown as a separate line item on the balance sheet and can be calculated by subtracting the parent company's ownership percentage from 100%. Goodwill adjustment may be necessary if there is a difference between the amount paid for the non-controlling interest and its fair market value, but this is not the recommended method for disclosing the non-controlling interest itself. The non-controlling interest should not be shown as a liability as it represents an ownership interest, not a debt.

Question 19

The calculation of the NCI is necessary both for the Statement of Changes in Equity and for the Statement of Financial Position.

Accepted Answer

The non-controlling interest (NCI) represents the portion of a subsidiary's equity that is not owned by the parent company. The calculation of NCI is necessary for both the Statement of Changes in Equity, where it is shown as a separate component of equity, and for the Statement of Financial Position, where it is reported as a separate line item under equity. Therefore, statement A is true.

Question 20

When a parent increases its ownership interest, the difference between the amount that was paid by the parent and the amount that was transferred from the non-controlling interest is allocated to equity.

Accepted Answer

This statement is true. When a parent increases its ownership interest, any difference between the amount paid by the parent and the amount transferred from the non-controlling interest is allocated to equity. This is because the parent is essentially investing in its own company, which increases the overall equity of the business.

Quiz 5: Consolidation: Non-Controlling Interest

Viner Ltd. acquired 70% of Bittner Ltd. on January 1, 2010. On January 1, 2014, Viner acquired another 10% of Bittner's common shares for $250,000. With respect to this additional purchase, which of the following is TRUE?

Under the partial goodwill method, the NCI is measured as a proportion of the net fair value of the identifiable net assets of the subsidiary at the acquisition date.

All intragroup transactions require an adjustment to the NCI.

A parent's consolidated net income which includes it's fully and partially owned subsidiaries is best described as:

The NCI consists of the accumulation of all the interests in the subsidiary other than that belonging to the parent.

In the rare case where a gain on bargain purchase may arise, such a gain has no effect on the calculation of the NCI share of equity.

When preparing and presenting a consolidated statement of comprehensive income, the non-controlling interest is presented as a separate component of revenue.

There are three main concepts of consolidation - proprietary, entity and parent entity.

Which consolidation method does NOT include incorporating 100% of a subsidiary's revenues and expenses?

Under the partial goodwill method, the NCI does not get a share of any equity relating to goodwill.

What is the purpose of showing an allocation of the net income between the parent and the subsidiary companies on the consolidated statement of comprehensive income?

The proprietary concept is sometimes referred to as proportional consolidation or pro rata consolidation.

Under the entity concept of consolidation, the group consists of the combined assets and liabilities of the parent and the subsidiary.

If a gain on bargain purchase arises on a business combination, the non-controlling interest is allocated 100% of the gain.

Whereas the goodwill of the subsidiary may be determined by calculating the goodwill acquired by the parent entity and then adding the fair value of the NCI, this process is not applicable for a gain on bargain purchase.

Ownership interests in a subsidiary entity that do not belong to the parent entity are known as un-owned interests.

What is the recommended method for disclosing a non-controlling interest in a company on a consolidated balance sheet where significant sales have occurred between the two companies?

The calculation of the NCI is necessary both for the Statement of Changes in Equity and for the Statement of Financial Position.

When a parent increases its ownership interest, the difference between the amount that was paid by the parent and the amount that was transferred from the non-controlling interest is allocated to equity.