28/03/2017

S01 2017 Week Date Lecture Reading Set Work Assessment

1 27/02 Introduction to Consolidation
2 06/03 Consolidation: Basic Principles
3 13/03 Consolidation: Fair Value
Adjustments and Tax Effects
4 20/03 Consolidation: Intra-Group
Transactions
5 27/03 Consolidation: Partly Owned
Subsidiaries (DNCI)
6 03/04 or Mid-Semester Exam (30%)
Arthur et al Chapter 1 and 2; AASB 10 Consolidated
Q1.1; Q1.2; Q1.3; Q1.9;
Financial Statements; AASB 12 Disclosure of Interests
Q1.11.
in Other Entities
Arthur et al Chapter 1 and 2; AASB 3 Business Q2.3; Q2.4; Q2.5; Q2.6; Case Study and rubric
Combinations; AASB 13 Fair Value Measurement E2.1; E2.2; E2.8; E2.10. available this week
Arthur et al Chapter 3; AASB 112 Income Taxes; AASB Q3.1; Q3.3; Q3.6; Q3.8;
6 Exploration for and Evaluation of Mineral Resources. E3.3; E3.7.
Arthur et al Chapter 4; AASB 102 Inventories; AASB Q4.2; Q4.3; Q4.11; E4.1;
116 Property, Plant & Equipment E4.5; E4.7.
Arthur et al Chapter 5; AASB 101 Presentation of Q5.1; Q5.3; Q5.8; E5.1; E5.3;
Financial Statements E5.9.
In-Class exam. Students must attend their sinet (Census #1 date)

ACCT7104
07/04 registered seminar session. Mid semester exam
Good Friday 14/04. 7 10/04 Consolidation: Partly Owned Arthur et al Chapter 6; AASB 127 Separate Financial
Q6.1; Q6.5; Q6.6; Q6.8;
No Friday seminar this Subsidiaries (INCI) Statements; AASB 1024 Consolidated Accounts.
E6.1; E6.3; E6.8,
week.

Corporate Accounting
Easter Monday 17/04 Semester break: no classes or
17/04 consultation this week
Anzac Day Tuesday 25/04 8 24/04 Accounting for Joint Arthur et al Chapter 8; AASB 11 Joint Arrangements Q8.2; Q8.3; Q8.6; Q8.7;
(Census #2 date)
Arrangements/Joint Ventures E8.1; E8.5; E8.8.
May Day 9 01/05 The Equity Method Arthur et al Chapter 9; AASB 128 Investments in Q9.1; Q9.2; Q9.4; Q9.9;
Monday 01/05 Associates and Joint Ventures E9.2; E9.3; E9.8.
No Monday seminar this
week.
10 08/05 Foreign Currency Translation Arthur et al Chapter 10; AASB 121 The Effects of Case Study due Thursday
Seminar Five: Consolidation Direct Non-controlling Interests 11 15/05 Segment Reporting
Changes in Foreign Exchange Rates
Arthur et al Chapter 11; AASB 8 Operating Segments.
Q10.1; Q10.3; E10.2; E10.6

QQ11.1; Q11.8; Q11.11;

11 May.

E11.1; E11.6.
12 22/05 External Administration and Dagwell et al Chapter 20 available at Q20.2; Q20.3; Q20.4;
Liquidation http://www.library.uq.edu.au/lr/acct7104 Problem 20.9;
Comprehensive Exercise
20.13.
13 29/05 Review and sample paper Sample final paper available on Blackboard Centrally organised final
walkthrough exam during exam period
SWOTVAC

Seminar 5 Objectives 3 Seminar 5 Reading and Set Work 4

Outline the nature of non-controlling (minority) interests

Understand how to calculate goodwill using both the proportionate
interest goodwill method and the 100% goodwill method
Determine the effect on non-controlling interests of various intra-group Reading: Arthur et al Chapter 5; AASB 101 Presentation of Financial
transactions Statements
Calculate the non-controlling interest in group income and in group equity
Outline the basic constructions of consolidated statements of Questions and problems from Arthur et al: Q5.1; Q5.3; Q5.8; E5.1; E5.3;
comprehensive income, changes of equity and financial position for E5.9.
groups in which there are non-controlling interests
Prepare adjustments and consolidated financial statements for a group in
which there are non-controlling interests

Why are non-controlling interests

5 What are non-controlling interests? 6
important?

So far, we have only dealt (in a practical sense) with consolidation

methodology where the subsidiary was 100% owned by the parent AASB10.A defines non-controlling interests as:
Often, subsidiaries are not wholly owned the equity in a subsidiary not attributable, directly or
Where the ownership stake in a subsidiary is less than 100% of issued indirectly, to a parent
capital, non-controlling (minority) interests arise
We need to apply the consolidation methodology in the presence of these
non-controlling interests

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Parent Interests 7 Non-controlling interests 8

The parent entity is the entity that has the power to
control the relevant activities of other entities (AASB10)
its subsidiaries
Control may be exercised directly or indirectly through
other subsidiaries
Non-controlling interests arise when a parent entity owns less than
100% of the issued shares of a subsidiary
Non-controlling interests can be direct or indirect
Consider the following diagrams

Control is exercised through the board of directors of a

subsidiary, voting rights and other means

Control aspects in 2 tier group 9 Control aspects in 3 tier group 10

Parent Ltd
Parent Ltd
80%

80% Direct Parent Interest = 80% Subsidiary 1 Ltd

Direct NCI = 20%
Indirect NCI = 0
60%
Subsidiary 1 Ltd
Subsidiary 2 Ltd

Control aspects in 3 tier group 11 Control aspects in 3 tier group 12

Parent Sub 1 Sub 2 Parent Ltd

Parent interest - direct 100% 80%
- indirect 48%
80%
Non-controlling interest - direct - 20% 40%
Subsidiary 1 Ltd 25%
- indirect 12%

60%
Total 100% 100% 100%
Notes:
1. Indirect Non-Controlling Interests only occur in 3+ tier Group Subsidiary 2 Ltd
2. Distinction important as allocations differ between DNCI & INCI

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Control aspects in 3 tier group 13 The entity concept 14

Parent Sub 1 Sub 2 Australian reporting requirements for consolidation are based on the
entity concept
Parent interest - direct 100% 80% 25%
- indirect - - 48%
Under the entity concept, the group (or consolidated entity) consists
of all entities under the common managerial control of the parent
Non-controlling interest - direct - 20% 15%
- indirect - - 12% Therefore, 100% of the resources of all subsidiaries are included in
the group accounts, even if the subsidiaries are less than 100% owned

Total 100% 100% 100%

This means that allocations of equities between parent and non
Notes:
1. Indirect Non-Controlling Interests only occur in 3+ tier Group
controlling interests must be disclosed in the consolidated financial
2. Distinction important as allocations differ between DNCI & INCI statements

Consolidation and non-controlling 15 Consolidation and non-controlling 16

interests interests
AASB10 B94 states that:
AASB10.22 states that: an entity shall attribute the profit or loss and each
Non-controlling interests shall be presented in the component of other comprehensive income to the
consolidated statement of financial position within owners of the parent and to the non-controlling
equity, separately from the equity of the owners of the interests .. even if this results in the non-controlling
parent interests having a deficit balance

Presentation of group data 17 Presentation of group data 18

Group financial reports are prepared primarily for stakeholders in the
parent entity
Each share in the parent entity carries the same rights and privileges
The equity of the parent entitys shareholders is disclosed in detail
AASB 101 Presentation of Financial Statements requires disclosure of the following
in the groups financial statements:
Non-controlling interests in equity: in the equity section of the consolidated
SOFP (AASB 101.54(q))
Non-controlling interests in profit or loss for the period: on the face of the
consolidated statement of comprehensive income (AASB 101.81B(a)(i))

The shares held by non-controlling shareholders in two or more Non-controlling interests in total comprehensive income for the period: on
the face of the consolidated statement of comprehensive income
subsidiaries do not carry the same rights not relevantly additive (AASB101.81(b)(i))

The equity interests of the non controlling shareholders are thus Non-controlling interests in total comprehensive income: disclosed in
disclosed as one-line items statement of changes in equity (AASB 101.106(a))

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Group financial reports: consolidated

Presentation of group data 19 20
statement of financial position
Assets Group Data (100%)
AASB 10 and AASB 101 do not require the disclosure of the NCI in Liabilities Group Data (100%)
each equity balance in the consolidated financial statements
Approach now is to disclose PI and NCI in specific parts of the
consolidated financial statements Equity attributable to the members of the parent
Shareholders entity in detail (100% - NCI%)
Note that for all NCI material to the group, the NCI in dividends and
summarized information about partly owned subsidiaries assets, equity
liabilities, profit or loss and cash flow should be disclosed Equity of the Non-controlling shareholders in
subsidiaries reported as a one-line item
(NCI%)

Group financial report: consolidated

income statement 21 Direct NCI in owners equity 22

Profit before tax from continuing operations

Where a subsidiary is partly owned, only the parents proportionate
Income tax expense share of owners equity is eliminated against the investment
Profit from continuing operations after tax Group Data account
Profit from discontinued operations (100%) NCI in owners equity is then calculated and disclosed in the
Profit for the year consolidated statements
Less non-controlling interest (NCI %) Parent entity interests in owners equity item is determined by
deducting the calculated NCI amount from the consolidated totals
Profit for the year attributable to members of Parent entity
the parent entity shareholder data The NCI allocation can also be performed via consolidation
adjustments
(100% - NCI%)
We assume the memorandum account approach

Non-controlling interest memorandum 23

Time for a short break
24
account
NCIMA as at dd-mm-yyyy Subsidiary 1 Subsidiary 2
$ DNCI % $ DNCI %
Opening retained earnings xx xx yy yy
Edwin Arthur Vincent Sheldon (1895-1945)
Current year profit xx xx yy yy Nerang River
watercolour on paper
Current year dividends (xx) (xx) (yy) (yy) image 30.3 x 42.5 cm
Collection of The University of Queensland.
General reserve xx xx yy yy Gift of Dr James Vincent Duhig, 1945.

Revaluation surplus xx xx yy yy

Totals xx xx yy yy
Total DNCI = xx + yy

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Direct NCI & intra-group transactions 25 Direct NCI & intra-group transactions 26

AASB 10 requires full elimination of intercompany
transactions
This is consistent with the entity concept
Dividends are the only exception to this rule and are
always eliminated proportionately
Therefore, consolidation eliminations of intragroup
transactions must be analysed to determine their impact
(if any) on NCI
Where relevant, NCI is adjusted for their share of such
eliminations
Each relevant category of each subsidiarys equity will
need to be adjusted for any intra-group transactions
affecting NCI
The starting point will always be the subsidiarys
unadjusted reported equity figure at the period end
The subsidiarys reported equity figures must be adjusted
for relevant eliminations and unrealised profits before
allocation to NCI

Direct NCI & intra-group transactions 27 Direct NCI & dividends 28

When consolidation adjustments are prepared, it is
important to note which company is affected by the
adjustment, as the relevant equity of that company will be
changed
It is also important to note what category of equity is
affected by the adjustment
Dividends paid by subsidiaries are eliminated proportionately on
consolidation
Therefore dividends attributable to direct NCI are always
included in the consolidated financial statements
Amounts relating to direct NCI share of dividends are reported
in the consolidated financial statements and, where relevant,
allocated to NCI

Direct NCI & direct entries to equity 29 Direct NCI & intra-group transactions 30

Brief Example 1
Some transactions or events give rise to direct entries to
equity/other comprehensive income Intra-group Closing Inventory consolidation adjustment (perpetual):
A has 80% subsidiary B. Bs current year (CY) reported profit = $40,000
Examples include an upward revaluation of assets or transfer B sells to A, URP at year end = $10,000, what is the effect of the adjustment on the
from/to reserves from retained profits NCI in CY profit?
Consolidation Adjustments
Where relevant, these direct entries will affect the
measurement of NCI Dr COGS 10,000 CY Profit of Sub B
Cr Inventory 10,000 Not equity
An exception is where a revaluation of assets to fair value at
control date is done on consolidation
Dr DTA 3,000 Not equity
Cr IT Expense 3,000 CY Profit of Sub B

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Direct NCI & intra-group transactions 31 Direct NCI & intra-group transactions 32
Brief Example 2
Brief Example 1 (continued)
Intra-group Closing Inventory consolidation adjustment (perpetual)
Thus, effect on NCI shown in a NCIMA:
A has 80% subsidiary B. Bs CY reported profit = $40,000
A sells to B, URP at year end = $10,000
Reported CY profit (Subsidiary B) 40,000 Consolidation Adjustments
Less: Inventory URP (10,000) Dr COGS 10,000 CY Profit of Parent A
Plus: Tax effect 3,000 Cr Inventory 10,000 Not equity
CY Profit (realised) to be allocated to NCI $33,000 Dr DTA 3,000 Not equity
Allocation to NCI @ 20% $6,600 Cr IT Expense 3,000 CY Profit of Parent A
Note: as there is no NCI in Parent, there is no adjustment to NCI in CY profit

Examples re specific adjustments 33 Examples re specific adjustments 34

Progressive Example
Y buys 80% Z on 1-Jan-20X0 for $500,000. Both use cost model.
Note that:
Date of Reporting is 31-Dec-20X1
1. Land FVA @ DOA = $300,000 Entity concept of group requires full value of all assets in consolidation
Fair Value Consolidation Adjustment Fair Value Consolidation Adjustment
If 100% owned ($000): However, NCI will need to be allocated part of the revaluation surplus
If only 80% owned ($000)

Dr Land 300 Dr Land 300 (Not equity)

Cr FVA 210 Cr FVA 210 (FVA of Z)
Cr DTL 90 Cr DTL 90 (Not equity)

Examples re specific adjustments 35 Examples re specific adjustments 36

Progressive Example Progressive Example

2. Zs equity at DOA = Issued capital $300,000 & retained earnings $190,000 2. Consolidation elimination of investment:
Investment analysis:
If 100% owned ($000): If only 80% owned ($000):
If 100% owned ($000): If 80% owned ($000): Consolidation Adjustments Consolidation Adjustments
Cost 500 Cost 500 Dr Issued capital 300 Dr Issued capital (80%) 240 (NCI 20%)
Issued capital 300 Issued capital 300 Dr Retained earnings 190 Dr Retained earnings (80%) 152 (NCI 20%)
Retained earnings 190 Retained earnings 190 Dr FVA 210 Dr FVA (80%) 168 (NCI 20%)
FVA 210 FVA 210 Cr Gain on BP 200 Cr Gain on BP 60 (CY profit of Y)
700 700 Cr Investment in Sub 500 Cr Investment in Sub 500 (Not equity)
100% F.V. acquired (700) 80% F.V. acquired (560)
Gain on BP (200) Gain on BP (60)

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Examples re Specific Adjustments 37 Examples re Specific Adjustments 38

Progressive Example Progressive Example
3. Z declared dividends in current year of $250,000
Dividend Elimination 4. In 20X0, Z sold inventory to Y at profit $100,000, sold externally in
20X1. Perpetual method used.
If 100% owned ($000) If only 80% owned ($000) Opening Inventory Elimination
Consolidation Adjustments Consolidation Adjustments
If 100% owned ($000) If only 80% owned ($000)
Dr Div Rev 250 Dr Div Rev (80%) 200 (CY Profit of Y) Consolidation Adjustment Consolidation Adjustment
Cr Div Decld 250 Cr Div Decld (80%) 200 (DivDecld of Z)
Dr Retained earnings 70 Dr Retained earnings 70 (RE of Z)
Dr Div Pay250 Dr Div Pay (80%) 200 (Not equity) Dr ITE 30 Dr ITE 30 (CY Profit of Z)
Cr Div Rec 250 Cr Div Rec (80%) 200 (Not equity) Cr COGS 100 Cr COGS 100 (CY Profit of Z)

Examples re Specific Adjustments 39 Examples re Specific Adjustments 40

Progressive Example
Note: 5. In 20X1, Z sold inventory to Y at profit $40,000, not sold externally in
20X1
No change because NCI exists Closing Inventory Elimination

Group basis requires full value of all assets in consolidation If 100% owned ($000) If only 80% owned ($000)
Consolidation Adjustment Consolidation Adjustment
However, NCI will need to be allocated part of RE and
current year (CY) profit Dr COGS 40 Dr COGS 40 (CY Profit of Z)
Cr Inventory 40 Cr Inventory 40 (Not equity)

Dr DTA 12 Dr DTA 12 (Not equity)

Cr ITE 12 Cr ITE 12 (CY Profit of Z)

Examples re Specific Adjustments 41 Examples re Specific Adjustments 42

Note: 6. Zs reported CY profit = $238,000 & Opening RE = $220,000

No other changes to Zs equity unless covered above
No change because NCI exists

Group basis requires full value of all assets in consolidation

Calculate the DNCI in consolidated current year profit using a NCI
However, NCI will need to be allocated part of current year Memorandum Account
(CY) profit

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Examples re specific adjustments 43 Non-controlling interests 44

NCIMA as at 31-Dec-20X1 $ DNCI = 20%
Current year profit 238
Plus: URP Opening inventory 100
Only need a column for
Less: tax effect (30) subsidiary, as there is no
Less: URP Closing inventory
Plus: tax effect
(40)
12
NCI in the Parent
Alternative allocations of goodwill
Allocatable to NCI 280 56
Current year dividends (250) (50)
Opening retained earnings 220
Less: URP opening inventory (70)
Allocatable to NCI 150 30
Issued capital Note: 508 x 20% = $101.6,
300 60
not the same result
Fair value adjustment 210 42
508 138

Direct NCI & consolidation difference 45 Proportionate interest goodwill method 46

AASB3.19 now allows a choice between NCI is measured as the non-controlling shareholders
measuring NCI at date of acquisition by proportionate interest in the subsidiarys net assets
either:
No goodwill is imputed or allocated to the NCI
The proportionate interest goodwill
method; or Conventional and does not require calculation of the fair
value of the NCI at acquisition
The 100% goodwill method

Direct NCI in owners equity: Proportionate interest goodwill

proportionate interest goodwill method 47 48
method
Investment analysis:
An example: Peter Ltd acquired 80% of Pan Ltd shares
Cost of acquisition $1,200
for $1,200 on 1 January 2012. Pan Ltd assets are
stated at their fair values. Its owners equity at that date
consisted of: issued capital $600; reserves $400 and retained Fair value of Pans net identifiable assets acquired:
profits $250. Simplified Statements of Financial Position Issued Capital 600
for the two companies one year later are included in the Reserves 400
following worksheet. The task is to consolidate at 31 Retained Profits 250
December 2012. Use the proportionate interest goodwill 1,250 x 80% 1,000
method.
Difference on consolidation - goodwill 200

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Proportionate interest goodwill method

Proportionate interest goodwill
49 Peter Pan Sum Eliminations Group Allocation to
method shareholders
Dr Cr DNCI Parent
Consolidation Adjustments Issued capital 2,000 600 2,600 480 2,120 120 2,000
31/12/12 Reserves 800 400 1,200 320 880 80 800
Retained profits 1,200 550 1,750 200 1,550 110* 1,440

Dr. Issued capital 480 (600x80%) Owners equity 4,000 1,550 5,550 4,550 310 4,240

Dr. Reserves 320 (400x80%) Investment in Pan 1,200 1,200 1,200 ----

Dr. Retained profits 200 (250x80%) Goodwill 200 200

Other net assets 2,800 1,550 4,350 4,350
Dr. Goodwill 200
Net assets 4,000 1,550 5,550 1,200 1,200 4,550
Cr. Investment in Pan 1,200
* remember that DNCI are entitled to their share of both pre- & post-acquisition equity as they
existed before the acquisition as part of the shareholders of Pan Ltd as well as continuing to exist
after the acquisition

100% Goodwill method 51 100% Goodwill method 52

NCI is measured as the fair value of the non-controlling

shareholders interest at acquisition
Both parent and NCI interests in goodwill are recognised on the
consolidated balance sheet
NCI interest in consolidated shareholders equity then adjusted
for the goodwill
Relatively easy to implement if there is an active market for the
partly controlled entitys voting shares
An example: Peter Ltd acquired 80% of Pan Ltd shares for
$1,200 on 1 January 2012. Pan Ltd assets are stated at their
fair values. Its owners equity at that date were: capital
$600; reserves $400 and retained profits $250. Simplified
balance sheets for the two companies one year later are
included in the following worksheet. The task is to
consolidate at 31 December 2012. The directors of Peter Ltd
have decided to adopt the 100% goodwill method. The fair
value of the non-controlling interest in Pan Ltd on 1 January
2012 was $300.

100% Goodwill method 53 100% Goodwill method 54

Investment analysis: Consolidation Adjustments

Cost of acquisition $1,200 31/12/12
NCI at fair value 300
Notional cost of acquisition $1,500
Dr. Issued capital 480 (600x80%)
Fair value of net identifiable assets acquired: Dr. Reserves 320 (400x80%)
Issued Capital $600 Dr. Retained profits 200 (250x80%)
Reserves 400
Dr. Goodwill 250
Retained profit 250
Fair value of net assets acquired $1,250 Cr. NCI equity 50
Difference on consolidation - goodwill $250 Cr. Investment in Pan 1,200

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100% Goodwill method

Direct NCI in owners equity 56
Peter Pan Sum Eliminations Group Allocation to
shareholders
Dr Cr NCI Parent
Issued capital 2,000 600 2,600 480 2,120 120 2,000 Detailed Example
Reserves 800 400 1,200 320 880 80 800
Retained profits 1,200 550 1,750 200 1,550 110 1,440
NCI - equity 50 50 50
Intra-group Inventory Transactions
Owners equity 4,000 1,550 5,550 4,600 360 4,240

Investment in Pan 1,200 1,200 1,200 ---- Fred Ltd

Goodwill 250 250 &
Other net assets 2,800 1,550 4,350 4,350
Wilma Ltd
Net assets 4,000 1,550 5,550 1,250 1,250 4,600

Direct NCI & intra-group transactions 57 Direct NCI & intra-group transactions 58
Fred Ltd owns 75% of the issued shares of Wilma Ltd and controls it. Over the last Reported profits for the 2 companies over the two periods are as follows:
2 years (2012 and 2013) the following intra-group sales of inventory have 2012 2013
occurred between the 2 companies:
Fred $120,000 $155,000
Seller Year Transfer Price Cost Proportion in Proportion in Wilma $ 62,000 $ 74,000
inventory at y/e 2012 inventory at y/e 2013
Both companies have a 31 December year end and both use the periodic inventory
Fred 2012 $20,000 $15,000 50% URP = $2,500 0 URP = $0 system.
Wilma 2012 $12,000 $8,000 100% URP = $4,000 0 URP = $0
Retained profits at 1 January 2012 were Fred $100,000 and Wilma $30,000
2012 I/C sales =
$32,000 Assume no dividends paid or declared and no other transfers to/from retained profits
for the 2 years
Wilma 2013 $50,000 $40,000 NA URP = $0 80% URP = $8,000
The income tax rate is 30%
Fred 2013 $6,000 $4,000 NA URP = $0 100% URP = $2,000
Required: relevant consolidation adjustments for year-end 31 December 2012 and
2013 I/C sales =
31 December 2013.
$56,000

Direct NCI & intra-group transactions 59 Direct NCI & intra-group transactions 60
Consolidation Adjustments
Consolidation Adjustments 31 December 2012
31/12/12 Dr. Closing inventory (I/S) 6,500
Cr. Inventory (B/S) 6,500
Dr. Sales 32,000
(To eliminate unrealised profits in the closing inventory of Wilma $4,000 and
Cr. Purchases 32,000 Fred $2,500)
Dr. Deferred tax asset 1,950
(To eliminate intra-group sales of inventory made in 2012 by Cr. Income tax expense 1,950
Fred ($20,000) and by Wilma ($12,000)) (Tax effect of elimination for unrealised profit in closing inventory of Wilma
$1,200 ($4,000 x 30%) and Fred $750 ($2,500 x 30%))

Note: net profit effect on Wilma is $2,800 ($4,000URP - $1,200Tax),

and on Fred is $1,750 ($2,500URP - $750Tax)

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Direct NCI & intra-group transactions 61 Direct NCI & intra-group transactions 62

NCI Memorandum Account 31 December 2012

Group Fred Wilma
$ $ $ NCI in current profit:
Reported profit for 2012 182,000 120,000 62,000 59,200 x 25%= $14,800
Elimination for unrealised profits
in closing inventory (4,550) (1,750) (2,800) NCI in opening retained earnings:
Adjusted profit 177,450 118,250 59,200 30,000 x 25%= $7,500
Reported retained profits 1/1/12 130,000 100,000 30,000
Retained profits 31/12/12 307,450 218,250 89,200 Total NCI = 14,800 + 7,500 = $22,300

Direct NCI & intra-group transactions 63 Direct NCI & intra-group transactions 64

Consolidation Adjustments Consolidation Adjustments

31 December 2013 31 December 2013

Dr. Sales 56,000 Dr. Closing inventory (I/S) 10,000

Cr. Inventory (B/S) 10,000
Cr. Purchases 56,000
(To eliminate intra-group sales of inventory made in
2013 by Fred ($6,000) and by Wilma ($50,000) (To eliminate unrealised profits in the closing inventory of
Wilma $8,000 and Fred $2,000)

Direct NCI & intra-group transactions 65 Direct NCI & intra-group transactions 66
Consolidation Adjustments Consolidation Adjustments
31 December 2013 31 December 2013

Dr. Deferred tax asset 3,000 Dr. Retained profits 1/1/13 6,500
Cr. ITE 3,000 Cr. Opening inventory 6,500
(Tax effect of elimination for unrealised profit in closing inventory
(To adjust for unrealised profits in the opening inventory of
of Wilma $2,400 ($8,000 x 30%) and Fred $600 ($2,000 x 30%))
Wilma $4,000 and Fred $2,500)
Note: net profit effect on Fred is $1,400 ($2,000URP - $600Tax),
and on Wilma is $5,600 ($8,000URP - $2,400Tax)

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67 Direct NCI & intra-group transactions 68

Direct NCI & intra-group transactions
Group Fred Wilma
Consolidation Adjustments $ $ $

31 December 2013 Reported profit for 2013 229,000 155,000 74,000

Elimination for unrealised profits in
Dr. Income tax expense 1,950 closing inventory (7,000) (1,400) (5,600)
Cr. Retained earnings 1/1/13 1,950 Elimination for unrealised profits in
opening inventory 4,550 1,750 2,800
(Tax effect of unrealised profit in the opening inventory of Wilma
Adjusted profit 226,550 155,350 71,200
$1,200 ($4,000 x 30%) and Fred $750 ($2,500 x 30%))
Reported retained profits 1/1/13 312,000 220,000 92,000
Elimination for unrealised profits in
Note: net profit effect on Wilma is $2,800 ($4,000URP - $1,200Tax) opening inventory (4,550) (1,750) (2,800)
and on Fred is $1,750 ($2,500URP - $750Tax)
Adjusted retained profits 31/12/13 534,000 373,600 160,400

Direct NCI & intra-group transactions 69 Wrapping up 70

NCI Memorandum Account 31/12/13

This week we looked at reporting for direct non-controlling
NCI in current profit: interests (DNCI) on consolidation
71,200 x 25%= $17,800 Consolidation adjusting entries are analysed to ascertain
their impact on the NCIs
NCI in adjusted opening retained earnings: The NCI Memorandum Account is then used to calculate the
relevant NCI in the consolidated financial statements
89,200 x 25%= $22,300
Both the Proportionate Goodwill and 100% Goodwill methods
are allowable methods for calculating goodwill where there
Total NCI = 17,800 + 22,300 = $40,100 are NCIs
= 160,400 x 25% = $40,100

Thats all for now see you next

time! 71

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