Question 1

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?

Accepted Answer

When a subsidiary makes a transfer from retained earnings to a general reserve, this would decrease its retained earnings and increase the general reserve. As the NCI (non-controlling interest) only represents a portion of the subsidiary's equity, it would not be recorded in the NCI journal. Therefore, the line that would appear in the NCI journal relating to the current year transfer would be to credit (Cr) the transfer to general reserve. The correct journal entry would be:
Dr General Reserve
Cr Retained Earnings (of the subsidiary)

Question 2

Jiminez Limited acquired 80% of the shares in Mustang Limited for $180 000. At acquisition date, share capital in Mustang was $100 000 and reserves amounted to $50 000. All assets and liabilities of Mustang were recorded at fair value at acquisition date 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:

Accepted Answer

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

Question 3

A non-controlling interest in a subsidiary entity is entitled to a share of the following items:

Accepted Answer

The answer of A non-controlling interest in a subsidiary entity...

Question 4

Lu Nan Limited acquired 70% of the share capital and reserves of Hui Limited for $36 000. Share capital was $18 000 and reserves amounted to $10 800. All assets and liabilities were recorded at fair value except plant which was recorded at $2 500 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:

Accepted Answer

The answer of Lu Nan Limited acquired 70% of the...

Question 5

A non-controlling interest is entitled to a share of which of the following items?
I Equity of the group entity 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.

Accepted Answer

A non-controlling interest is entitled to a share of the subsidiary entity's equity, which includes the equity at acquisition date (IV) and any changes in equity since then (III). Additionally, the non-controlling interest is entitled to a share of the current period's profit or loss of the subsidiary entity (II) as it reflects the performance of the subsidiary since acquisition. Therefore, options A, B, and D are incorrect as they either exclude the share of changes in equity or do not include the current period profit or loss.

Question 6

For an intragroup transaction to require an adjustment to the calculation of the non-controlling interest share of equity it must have which of the following characteristics:
I The transaction must result in the subsidiary recording a profit or a loss.
II After the transaction the other party (not the party holding the non-controlling interest) 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.

Accepted Answer

The answer of For an intragroup transaction to require an...

Question 7

Petros Limited is a subsidiary of Butros Limited. When Butros acquired its 60% interest in Petros, the retained earnings of Petros were $20 000. At the beginning of the current period Petros Limited's retained earnings were $50 000. Petros earned profit after tax of $10 000 during the current period. The share of the non-controlling interest in the equity of Petros Limited at the end of the current period is:

Accepted Answer

The share of the non-controlling interest in the equity of Petros Limited at the end of the current period is $24 000. This is calculated as follows:Beginning retained earnings of Petros Limited: $50,000Add: Profit after tax for the current period: $10,000Less: Dividends paid during the current period: $0Ending retained earnings of Petros Limited: $60,000Multiply by the non-controlling interest percentage: 40%Share of the non-controlling interest in the equity of Petros Limited: $24,000

Question 8

Company A Limited owns 90% of the share capital of Company B Limited. Company B Limited paid a dividend of $20 000 during the financial period. The NCI adjustment entries in the consolidation worksheet for the dividend include:

Accepted Answer

The Non-Controlling Interest (NCI) holds 10% of Company B, so they are entitled to 10% of the dividend, which is $2,000. The entry would be to debit NCI for their share of the dividend.

Question 9

A non-controlling interest in the net assets of a subsidiary consists of the amount of those non-controlling interests at the date of the business combination:

Accepted Answer

The non-controlling interest is adjusted for the non-controlling proportionate share of changes in the subsidiary's equity since the business combination.

Question 10

Jiminez Limited acquired 80% of the shares in Mustang Limited for $180 000. At acquisition date, share capital in Mustang was $100 000 and reserves amounted to $50 000. All assets and liabilities of Mustang were recorded at fair value at acquisition date except buildings which was recorded at $10 000 below fair value. 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:

Accepted Answer

Calculation of Total Consideration Paid:
$180,000 / 80% = $225,000

Calculation of Fair Value of Net Assets:
Share Capital + Reserves = $100,000 + $50,000 = $150,000
Buildings recorded at $10,000 below fair value, so actual fair value = $10,000 + FV = FV - $10,000
FV = $20,000
Total fair value of net assets = $150,000 + $20,000 = $170,000

Calculation of Goodwill:
Total Consideration Paid - Fair Value of Net Assets = Goodwill
$225,000 - $170,000 = $55,000

NCI share of equity at acquisition date:
NCI = Fair Value of Net Assets x NCI % - NCI share of goodwill
NCI % = 20% (as 100% - 80% = 20%)
NCI share of goodwill = $55,000 x 20% x 30% = $3,300
NCI share of equity = ($170,000 x 20%) - $3,300 = $31,400

Therefore, the NCI share of equity at the date of acquisition was $31,400.

Question 11

A Ltd holds a 60% interest in B Ltd. B Ltd sells inventories to A Ltd during the year for $10 000. The inventories originally cost $7 000. At the end of the year 50% of the inventories are still on hand. The tax rate is 30%. The NCI adjustment required in relation to this transaction is a debit to NCI of:

Accepted Answer

The unrealized profit on the inventories still on hand is $1,500 ($3,000 * 50%). The NCI's share of this unrealized profit is 40% (100% - 60% control by A Ltd), which is $600. After accounting for tax (30% of $600 = $180), the NCI adjustment is $420 ($600 - $180).

Question 12

A Ltd holds a 60% interest in B Ltd. A Ltd sells inventory to B Ltd during the year for $10 000. The inventories originally cost $7 000 when purchased from an external party. At the end of the year 50% of the inventories are still on hand. The tax rate is 30%. The NCI adjustment required in relation to this intragroup transaction is a debit to NCI of:

Accepted Answer

The answer of A Ltd holds a 60% interest in...

Question 13

Under the partial goodwill method:

Accepted Answer

Under the partial goodwill method, the NCI is measured at the NCI's proportionate share of the fair value of acquiree's identifiable assets and liabilities. This means that the NCI will only receive recognition for their share of the net assets acquired, and will not be measured at fair value or based on any goodwill acquired by the NCI. The goodwill will still be recognised in the business combination valuation entries, but it will not affect the measurement of the NCI.

Question 14

A Ltd holds a 60% interest in B Ltd. B Ltd sells inventory to A Ltd during the year for $10 000. The inventories originally cost $7 000 when purchased from an external party. At the end of the year all inventories are still on hand. The tax rate is 30%. The NCI adjustment to this intragroup transaction is a debit to NCI of:

Accepted Answer

The unrealized profit on the inventory is $3,000 ($10,000 - $7,000). The NCI adjustment is 40% of the unrealized profit, which is $1,200. After tax adjustment (30%), it becomes $840.

Question 15

Changes in equity in the previous periods up to the beginning of the current period that must be identified for the step 2 NCI entry do not include:

Accepted Answer

The answer of Changes in equity in the previous periods...

Question 16

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:

Accepted Answer

When Company A owns 70% of Company B, it means Company A has a significant influence over Company B. Therefore, Company A should recognize its share of Company B's dividend as dividend revenue. The calculation is 70% x $10 000 = $7 000. The other options, B, C, and D, are incorrect because they either recognize the entire dividend as revenue or create a liability for the entire dividend, which is not accurate in this situation.

Question 17

During the previous 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?

Accepted Answer

The transfer from retained earnings to a general reserve by a partly-owned subsidiary would decrease the non-controlling interest's share of retained earnings, so the NCI account would be credited.

Question 18

What is not an effect of choosing the partial goodwill method over the full goodwill method:

Accepted Answer

The option that is not an effect of choosing the partial goodwill method over the full goodwill method is choice D, as the reported NCI value will still be shown regardless of which method is used. Choices A, B, and C are all potential effects of choosing the partial goodwill method over the full goodwill method.

Question 19

Changes in equity in the current period that must be identified for the step 3 NCI entry include:

Accepted Answer

All of the options listed must be identified and taken into account for the step 3 NCI entry to ensure accurate calculation of the non-controlling interest's share of equity in the current period. This includes adjusting for the impact of BCVR entries on profit, any transfers to/from reserves, and dividends paid/declared.

Question 20

The step 1 NCI entry to reflect the NCI share of equity at acquisition date:

Accepted Answer

The step 1 NCI entry reflects the NCI share of equity at acquisition date, and this value does not change over time, hence it does not need to be repeated every period.

Quiz 29: Consolidation: Non-Controlling Interest