ACW2491 Company Reporting

Tutorial Solution
Semester 1 2016
Topic 10: Consolidations: Non-Controlling Interest

CHAPTER 21
RQ 1 . What is meant by the term non-controlling interest (NCI)?
Refer Section 21.1.1 of the text
Refer Appendix AASB 10
RQ 4. How does the existence of an NCI affect the business combination valuation entries?
There is no effect.
However if the full goodwill method is used, the recognition of the subsidiarys goodwill is made via a BCVR
entry. In contrast, where the partial goodwill method is used, goodwill is recognised in the pre-acquisition
entry.
Why? The BCVR entries, apart from that for goodwill, are prepared because of the requirement of AASB 3 to
show the identifiable assets and liabilities of the acquiree at fair value. The determination of fair value is not
affected by the parents ownership in the subsidiary.
RQ 5. How does the existence of an NCI affect the pre-acquisition entries?
The pre-acquisition entry eliminates the investment account recorded by the parent and the pre-acquisition
equity of the subsidiary, as well as recognising any gain on bargain purchase.
The consideration transferred reflects the amount paid by the parent for its share of the equity of the
subsidiary. The first effect then on the pre-acquisition entry is that the equity eliminated is only the parents
share. The second effect is that the gain on bargain purchase recognised is only that relating to the parents
share of the equity of the subsidiary.
RQ 8. Explain whether an NCI adjustment needs to be made for all intragroup transactions.
An NCI adjustment does NOT need to be made for all intragroup transactions.
An NCI adjustment only needs to be made where the adjustment is for unrealised profit recorded by the
subsidiary. Hence the transaction must be an upstream subsidiary to parent transaction in order for an
NCI adjustment to be made. Further the upstream transaction must relate to unrealised subsidiary profit.

PQ 21.1 (B)
Step 1: Acquisition analysis at 1 July 2016:
Goodwill = $13 000
Step 2: Business combination valuation entries: NA
Step 3: Pre-acquisition entries
Share capital
General reserve
Retained earnings
Goodwill
Shares in Lorikeet Ltd

Dr
Dr
Dr
Dr
Cr

80 000
32 000
40 000
13 000

Dr
Dr
Dr
Cr

20 000
8 000
10 000

165 000

Step 4: Intragroup transactions NA

Step 5 (i) NCI share of equity 1/7/16
Share capital
General reserve
Retained earnings
NCI

38 000

ACW2491 Company Reporting

Tutorial Solution
Semester 1 2016
Topic 10: Consolidations: Non-Controlling Interest

Step 5 (ii) NCI share of equity in past period (1/7/16 30/6/17)

Retained earnings (1/7/17)
General reserve
NCI

Dr
Dr
Cr

3 000
2 000

Step 5 (iii) NCI share of equity in current period (1/7/17- 30/6/18)

NCI share of profit
NCI

Dr
Cr

3 000

5 000

3 000

PQ 21.6 Consolidation worksheet entries at 30 June 2019

Step 1: Pre-acquisition analysis
Goodwill = $8 000
Step 2: Business combination valuation entries
Accumulated depreciation - plant
Plant
Deferred tax liability
Business combination valuation reserve
Depreciation expense
Retained earnings
Accumulated depreciation
Deferred tax liability
Income tax expense
Retained earnings
Brands
Deferred tax liability
Business combination valuation reserve
Retained earnings
Accumulated impairment losses brands
Deferred tax liability
Retained earnings
Step 3: Pre-acquisition entries
Share capital
General reserve
Retained earnings
Business combination valuation reserve
Goodwill
Shares in Goose Ltd

Dr
Cr
Cr
Cr
Dr
Dr
Cr
Dr
Cr
Cr

26 000

Dr
Cr
Cr
Dr
Cr
Dr
Cr

80 000

16 000
3 000
7000
1 000
2 000
3 000
900
300
600

24 000
56 000
20 000
20 000
6 000
6 000

Dr
Dr
Dr
Dr
Dr
Cr

60 000
36 000
24 000
63 000
8 000

Retained earnings
BCVR
(Inventory)

Dr
Cr

15 750

Retained earnings
Goodwill
(Goodwill written off)

Dr
Cr

8 000

191 000

15 750

8 000

ACW2491 Company Reporting

Tutorial Solution
Semester 1 2016
Topic 10: Consolidations: Non-Controlling Interest

Step 4: Intragroup transactions: NA

Step 5 (i): NCI share of equity at 1/7/16
Share capital
General reserve
Retained earnings
Business combination valuation reserve
NCI

Dr
Dr
Dr
Dr
Cr

Step 5 (ii): NCI share of equity in past period (1/7/16 - 30/6/18)

General reserve
Retained earnings (1/7/18)
NCI

Dr
Dr
Cr

4 000
7 000

Dr
Cr

5 250

Dr
Cr

350

Dr
Cr

3 500

NCI
Business combination valuation reserve
(Inventory)
NCI
Retained earnings
(Depreciation)
NCI
Retained earnings
(Brand write off)

Step 5 (iii): NCI share of equity in current period (1/7/18 - 30/6/19)

NCI share of profit
Dr
NCI
Cr
NCI

Dr
Cr

NCI share of profit

(depreciation)

20 000
12 000
8 000
21 000
61 000

11 000

5 250

350

3 500

6 600
6 600
175
175

BARREN LTD
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2019
Revenues:
Sales revenue
Expenses:
Cost of sales
Other expenses

$464 000
198 000
66 600
264 600
199 400
43 700
155 700

Profit before income tax

Income tax expense
Profit for the period
Attributable to:
Parent shareholders
Non-controlling interest

149 275
6 425
$155 700
3

ACW2491 Company Reporting

Tutorial Solution
Semester 1 2016
Topic 10: Consolidations: Non-Controlling Interest

BARREN LTD
Consolidated Statement of Changes in Equity for the year ended 30 June 2019
Comprehensive income for the period
$155 700
Non-controlling interest
$6 425
Parent shareholders
$149 275
Group

Parent

$91 850
155 700
$247 550

$80 700
149 275
$229 975

$15 750
$15 750

0
0

Share capital:
Balance at 1 July 2018
Balance at 30 June 2019

$320 000
$320 000

$300 000
$300 000

General reserve:
Balance at 1 July 2018
Balance at 30 June 2019

$78 000
$78 000

$62 000
$62 000

Retained earnings:
Balance at 1 July 2018
Profit for the period
Balance at 30 June 2019
Business combination valuation reserve:
Balance at 1 July 2018
Balance at 30 June 2019

BARREN LTD
Consolidated Statement of Financial Position as at 30 June 2019
ASSETS
Current Assets
Inventory
Non-current Assets:
Property, plant and equipment
Plant
Accumulated depreciation
Brands
Accumulated impairment losses
Total Non-current Assets
Total Assets

$191 200

$476 000
(96 200)
200 000
(20 000)

379 800
180 000
559 800

$751 000

EQUITY AND LIABILITIES

Equity attributable to owners of the parent:
Share capital
Other reserves: General reserve
Retained earnings
Parent Interest
Non-controlling Interest
Total Equity
Current Liabilities
Non-current Liabilities
Deferred tax liabilities
Total Liabilities
Total Equity and Liabilities

$300 000
62 000
229 925
591 925
69 375
661 300
43 600
46 100
89 700
$751 000