Consolidations: Ch 3 - Partially-owned subsidiary

Question 1

Define the non-controlling interest of a subsidiary

Answer 1

Equity in the subsidiary not directly attributable to the parent. These equity participants do not have the required interest to exercise control over the subsidiary.

Question 2

Where does one identify the NCI in the consolidation process?FULLY explain.

Answer 2

1) Identify the the NCI in the SPLOCI of the subsidiary for the reporting period
2) Identify the NCI in the net assets of the subsidiary:
2a - amount of NCI at @ acquisition date
2b - amount of NCI in Statement of changes in equity (net assets) at since acquisition date

Question 3

Explain the method(s) used to measure NCI’s.

Answer 3

1) Fair-value (FV) method - FV is based on the quoted prices in the active market for shares that aren’t held by the parent
2) Proportionate share method - Allocating a proportion of the subsidiary’s equity at the @ acquisition date to the NCI (E.g. 20%)
* Note: The choice of measurement is only available at the @ acquisition date as the FV option is not available for subsequent measurement

Question 4

How would one calculate total goodwill/ gain from bargain (GBP) purchase? (FV method) What would be the difference between the treatment of goodwill and GBP in the @ acquisition journal entry?

Answer 4

Parent: Consideration paid for subsidiary + FV of NCI - net assets
NCI: FV of NCI - NCI’s proportionate share
Total Goodwill/GBP = Summation of above 2

1) Dr Goodwill (SFP)
2) Cr GBP (P/L)

Question 5

What is difference between calculating goodwill using the FV method vs. the proportionate share method?

Answer 5

FV method - Total goodwill is divided according to the percentage that each equity participate receives (i.e. if NCI owns 20%, 20% of goodwill is attributable to them)

Proportionate share method - No goodwill is attributable to NCI (Same applies to GBP)

Question 6

What’s the difference between the treatment of GBP at @ acquisition date vs. subsequent periods

Answer 6

@ acquisition - Recognize in SPLOCI

Since acquisition - affects opening balance of retained earnings

Question 7

X acquired 60% of Y on 01/01/20.5 for 150000.
Subsidiary:
- share capital OB = 70000
- retained earnings OB = 40000
- FV of NCI = 50000
- Profit = 200000
- retained earnings from trial balance = 75000

1) What’s the goodwill/GBP attributable to X as well as the NCI? Show separately.
2) What are the since acquisition consolidation journal entries

Answer 7

1) Parent goodwill: 150’ - (70’ + 40’)0.6 = 84000
Sub goodwill: 50’ - 0.4(70’ + 40’) = 6000

2a) 75’ - 40’ = 35’ x 0.4 = 14000
Dr Retained earnings OB
Cr NCI OB (SCE)

2b) 200’ x 0.4 = 80000
Dr Profit attributable to NCI (P/L)
Cr NCI movement (Profit) (SCE)

Question 8

X acquired 60% of Y on 01/01/20.5 for 150000.
Subsidiary:
- share capital OB = 70000
- retained earnings OB = 40000
- FV of NCI = 50000
- Loss = 150000
- retained earnings from trial balance = 75000

What are the since acquisition consolidation journal entries

Answer 8

150’ x 0.4 = 60000
Dr NCI movements (loss) (SCE)
Cr Loss attributable to NCI (P/L)