Seminar 5 2017

ACCT7104
Corporate Accounting
Seminar Five: Consolidation Direct Non-controlling Interests
S01 2017 Week Date Lecture Reading Set Work Assessment
1 27/02 Introduction to Consolidation 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
2 06/03 Consolidation: Basic Principles 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
3 13/03 Consolidation: Fair Value Arthur et al Chapter 3; AASB 112 Income Taxes; AASB 6 Q3.1; Q3.3; Q3.6; Q3.8;
Adjustments and Tax Effects Exploration for and Evaluation of Mineral Resources. E3.3; E3.7.
4 20/03 Consolidation: Intra-Group Arthur et al Chapter 4; AASB 102 Inventories; AASB 116 Q4.2; Q4.3; Q4.11; E4.1;
Transactions Property, Plant & Equipment E4.5; E4.7.
5 27/03 Consolidation: Partly Owned Arthur et al Chapter 5; AASB 101 Presentation of Q5.1; Q5.3; Q5.8; E5.1; E5.3;
Subsidiaries (DNCI) Financial Statements E5.9.
6 03/04 or Mid-Semester Exam (30%) In-Class exam. Students must attend their sinet (Census #1 date)

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.
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
Q10.1; Q10.3; E10.2; E10.6
Changes in Foreign Exchange Rates 11 May.
11 15/05 Segment Reporting Arthur et al Chapter 11; AASB 8 Operating Segments. QQ11.1; Q11.8; Q11.11;
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
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
transactions
Calculate the non-controlling interest in group income and in group equity
Outline the basic constructions of consolidated statements of
comprehensive income, changes of equity and financial position for groups
in which there are non-controlling interests
Prepare adjustments and consolidated financial statements for a group in
which there are non-controlling interests
Seminar 5 Reading and Set Work 4
Reading: Arthur et al Chapter 5; AASB 101 Presentation of Financial

Statements
Questions and problems from Arthur et al: Q5.1; Q5.3; Q5.8; E5.1; E5.3;
E5.9.
Why are non-controlling interests
5
important?
So far, we have only dealt (in a practical sense) with consolidation

methodology where the subsidiary was 100% owned by the parent
Often, subsidiaries are not wholly owned
Where the ownership stake in a subsidiary is less than 100% of issued
capital, non-controlling (minority) interests arise
We need to apply the consolidation methodology in the presence of these
non-controlling interests
What are non-controlling interests? 6
AASB10.A defines non-controlling interests as:

the equity in a subsidiary not attributable, directly or
indirectly, to a parent
Parent Interests 7
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
Control is exercised through the board of directors of a

subsidiary, voting rights and other means
Non-controlling interests 8
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 aspects in 2 tier group 9
Parent Ltd
80% Direct Parent Interest = 80%

Direct NCI = 20%
Indirect NCI = 0
Subsidiary 1 Ltd
Parent Ltd
80%
Subsidiary 1 Ltd
60%
Subsidiary 2 Ltd
Parent Sub 1 Sub 2

Parent interest - direct 100% 80%
- indirect 48%
Non-controlling interest - direct - 20% 40%

- indirect 12%
Total 100% 100% 100%

Notes:
1. Indirect Non-Controlling Interests only occur in 3+ tier Group
2. Distinction important as allocations differ between DNCI & INCI
Parent Ltd
80%
Subsidiary 1 Ltd 25
%
60%
Subsidiary 2 Ltd
Parent Sub 1 Sub 2

Parent interest - direct 100% 80% 25%
- indirect - - 48%
Non-controlling interest - direct - 20% 15%

- indirect - - 12%
Total 100% 100% 100%

Notes:
1. Indirect Non-Controlling Interests only occur in 3+ tier Group
2. Distinction important as allocations differ between DNCI & INCI
The entity concept 14
Australian reporting requirements for consolidation are based on the

entity concept
Under the entity concept, the group (or consolidated entity) consists
of all entities under the common managerial control of the parent
Therefore, 100% of the resources of all subsidiaries are included in

the group accounts, even if the subsidiaries are less than 100% owned
This means that allocations of equities between parent and non

controlling interests must be disclosed in the consolidated financial
statements
Consolidation and non-controlling 15
interests
AASB10.22 states that:

Non-controlling interests shall be presented in the
consolidated statement of financial position within
equity, separately from the equity of the owners of the
parent
Consolidation and non-controlling 16
interests
AASB10 B94 states that:
an entity shall attribute the profit or loss and each
component of other comprehensive income to the
owners of the parent and to the non-controlling
interests .. even if this results in the non-controlling
interests having a deficit balance
Presentation of group data 17
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
The shares held by non-controlling shareholders in two or more

subsidiaries do not carry the same rights not relevantly additive
The equity interests of the non controlling shareholders are thus

disclosed as one-line items
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))
Non-controlling interests in total comprehensive income for the period: on

the face of the consolidated statement of comprehensive income (AASB101.81(b)
(i))
Non-controlling interests in total comprehensive income: disclosed in

statement of changes in equity (AASB 101.106(a))
AASB 10 and AASB 101 do not require the disclosure of the NCI in
each equity balance in the consolidated financial statements
Approach now is to disclose PI and NCI in specific parts of the
consolidated financial statements
Note that for all NCI material to the group, the NCI in dividends and
summarized information about partly owned subsidiaries assets,
liabilities, profit or loss and cash flow should be disclosed
Group financial reports: consolidated
statement of financial position 20
Assets Group Data (100%)

Liabilities Group Data (100%)
Equity attributable to the members of the parent

Shareholders entity in detail (100% - NCI%)
equity
Equity of the Non-controlling shareholders in
subsidiaries reported as a one-line item
(NCI%)
Group financial report: consolidated
income statement 21
Profit before tax from continuing operations
Income tax expense
Profit from continuing operations after tax Group Data
Profit from discontinued operations (100%)
Profit for the year
Less non-controlling interest (NCI %)
Profit for the year attributable to members of Parent entity
the parent entity shareholder data
(100% - NCI%)
Direct NCI in owners equity 22
Where a subsidiary is partly owned, only the parents proportionate

share of owners equity is eliminated against the investment
account
NCI in owners equity is then calculated and disclosed in the
consolidated statements
Parent entity interests in owners equity item is determined by
deducting the calculated NCI amount from the consolidated totals
The NCI allocation can also be performed via consolidation
adjustments
We assume the memorandum account approach
Non-controlling interest memorandum 23
account
NCIMA as at dd-mm-yyyy Subsidiary 1 Subsidiary 2
$ DNCI % $ DNCI %
Opening retained earnings xx xx yy yy

Current year profit xx xx yy yy

Current year dividends (xx) (xx) (yy) (yy)

General reserve xx xx yy yy

Revaluation surplus xx xx yy yy

Totals xx xx yy yy
Total DNCI = xx + yy
Time for a short break
24
Edwin Arthur Vincent Sheldon (1895-1945)

Nerang River
watercolour on paper
image 30.3 x 42.5 cm
Collection of The University of Queensland.
Gift of Dr James Vincent Duhig, 1945.
Direct NCI & intra-group transactions 25
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
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
Direct NCI & dividends 28
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
Some transactions or events give rise to direct entries to

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

Cr IT Expense 3,000 CY Profit of Sub B
Brief Example 1 (continued)

Thus, effect on NCI shown in a NCIMA:
Reported CY profit (Subsidiary B) 40,000

Less: Inventory URP (10,000)
Plus: Tax effect 3,000
CY Profit (realised) to be allocated to NCI $33,000
Allocation to NCI @ 20% $6,600
Brief Example 2
Intra-group Closing Inventory consolidation adjustment (perpetual)
A has 80% subsidiary B. Bs CY reported profit = $40,000
A sells to B, URP at year end = $10,000
Dr COGS 10,000 CY Profit of Parent A
Cr Inventory 10,000 Not equity
Dr DTA 3,000 Not equity
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
Progressive Example
Y buys 80% Z on 1-Jan-20X0 for $500,000. Both use cost model.
Date of Reporting is 31-Dec-20X1
1. Land FVA @ DOA = $300,000
Fair Value Consolidation Adjustment Fair Value Consolidation Adjustment
If 100% owned ($000): 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)
Note that:
Entity concept of group requires full value of all assets in consolidation
However, NCI will need to be allocated part of the revaluation surplus

Progressive Example
2. Zs equity at DOA = Issued capital $300,000 & retained earnings $190,000
Investment analysis:
If 100% owned ($000): If 80% owned ($000):
Cost 500 Cost 500
Issued capital 300 Issued capital 300
Retained earnings 190 Retained earnings 190
FVA 210 FVA 210
700 700
100% F.V. acquired(700) 80% F.V. acquired (560)
Gain on BP (200) Gain on BP (60)
Progressive Example
2. Consolidation elimination of investment:
If 100% owned ($000): If only 80% owned ($000):

Consolidation Adjustments Consolidation Adjustments
Dr Issued capital 300 Dr Issued capital (80%) 240 (NCI 20%)
Dr Retained earnings 190 Dr Retained earnings (80%) 152 (NCI 20%)
Dr FVA 210 Dr FVA (80%) 168 (NCI 20%)
Cr Gain on BP 200 Cr Gain on BP 60 (CY profit of Y)
Cr Investment in Sub 500 Cr Investment in Sub 500 (Not equity)
Examples re Specific Adjustments 37
Progressive Example
3. Z declared dividends in current year of $250,000
Dividend Elimination
If 100% owned ($000) If only 80% owned ($000)
Consolidation Adjustments Consolidation Adjustments
Dr Div Rev 250 Dr Div Rev (80%) 200 (CY Profit of Y)

Cr Div Decld 250 Cr Div Decld (80%) 200 (DivDecld of Z)
Dr Div Pay 250 Dr Div Pay (80%) 200 (Not equity)

Cr Div Rec 250 Cr Div Rec (80%) 200 (Not equity)
Progressive Example
4. In 20X0, Z sold inventory to Y at profit $100,000, sold externally in
20X1. Perpetual method used.
Opening Inventory Elimination

Consolidation Adjustment Consolidation Adjustment
Dr Retained earnings 70 Dr Retained earnings 70 (RE of Z)

Dr ITE 30 Dr ITE 30 (CY Profit of Z)
Cr COGS 100 Cr COGS 100 (CY Profit of Z)
Note:
No change because NCI exists
Group basis requires full value of all assets in consolidation
However, NCI will need to be allocated part of RE and

current year (CY) profit
Progressive Example
5. In 20X1, Z sold inventory to Y at profit $40,000, not sold externally in
20X1
Closing Inventory Elimination
Consolidation Adjustment Consolidation Adjustment
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)
Note:
No change because NCI exists
Group basis requires full value of all assets in consolidation
However, NCI will need to be allocated part of current year

(CY) profit
6. Zs reported CY profit = $238,000 & Opening RE = $220,000

No other changes to Zs equity unless covered above
Calculate the DNCI in consolidated current year profit using a NCI

Memorandum Account
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 (40) NCI in the Parent
Plus: tax effect 12
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 300 60 Note: 508 x 20% = $101.6,
Fair value adjustment
not the same result
210 42
508 138
Non-controlling interests 44
Alternative allocations of goodwill

Direct NCI & consolidation difference 45
AASB3.19 now allows a choice between

measuring NCI at date of acquisition by
either:
The proportionate interest goodwill

method; or
The 100% goodwill method

Proportionate interest goodwill method 46
NCI is measured as the non-controlling shareholders

proportionate interest in the subsidiarys net assets
No goodwill is imputed or allocated to the NCI
Conventional and does not require calculation of the fair

value of the NCI at acquisition
Direct NCI in owners equity:
47
proportionate interest goodwill method
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
consisted of: issued capital $600; reserves $400 and retained
profits $250. Simplified Statements of Financial Position
for the two companies one year later are included in the
following worksheet. The task is to consolidate at 31
December 2012. Use the proportionate interest goodwill
method.
Proportionate interest goodwill
48
method
Cost of acquisition $1,200
Fair value of Pans net identifiable assets acquired:

Issued Capital 600
Reserves 400
Retained Profits 250
1,250 x 80% 1,000
Proportionate interest goodwill
49
method
31/12/12
Dr. Issued capital 480 (600x80%)

Dr. Reserves 320 (400x80%)
Dr. Retained profits 200 (250x80%)
Dr. Goodwill 200
Cr. Investment in Pan 1,200
Proportionate interest goodwill method
Peter Pan Sum Eliminations Group Allocation to
shareholders
Dr Cr DNCI Parent
Issued capital 2,000 600 2,600 480 2,120 120 2,000
Reserves 800 400 1,200 320 880 80 800
Retained profits 1,200 550 1,750 200 1,550 110* 1,440
Owners equity 4,000 1,550 5,550 4,550 310 4,240
Investment in Pan 1,200 1,200 1,200 ----
Goodwill 200 200
Other net assets 2,800 1,550 4,350 4,350
Net assets 4,000 1,550 5,550 1,200 1,200 4,550
* 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
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

52
100% Goodwill method
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.
Cost of acquisition $1,200
NCI at fair value 300
Notional cost of acquisition $1,500
Fair value of net identifiable assets acquired:

Issued Capital $600
Reserves 400
Retained profit 250
Fair value of net assets acquired $1,250
Difference on consolidation - goodwill $250
31/12/12
Dr. Issued capital 480 (600x80%)

Dr. Reserves 320 (400x80%)
Dr. Retained profits 200 (250x80%)
Dr. Goodwill 250
Cr. NCI equity 50
Cr. Investment in Pan 1,200
100% Goodwill method
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
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
Owners equity 4,000 1,550 5,550 4,600 360 4,240
Investment in Pan 1,200 1,200 1,200 ----
Goodwill 250 250
Other net assets 2,800 1,550 4,350 4,350
Net assets 4,000 1,550 5,550 1,250 1,250 4,600
Direct NCI in owners equity 56
Detailed Example
Intra-group Inventory Transactions
Fred Ltd
&
Wilma Ltd
Fred Ltd owns 75% of the issued shares of Wilma Ltd and controls it. Over the last 2
years (2012 and 2013) the following intra-group sales of inventory have occurred
between the 2 companies:
Seller Year Transfer Price Cost Proportion in Proportion in
inventory at y/e 2012 inventory at y/e 2013
Fred 2012 $20,000 $15,000 50% URP = $2,500 0 URP = $0
Wilma 2012 $12,000 $8,000 100% URP = $4,000 0 URP = $0
2012 I/C sales =
$32,000
Wilma 2013 $50,000 $40,000 NA URP = $0 80% URP = $8,000
Fred 2013 $6,000 $4,000 NA URP = $0 100% URP = $2,000

2013 I/C sales =
$56,000
Reported profits for the 2 companies over the two periods are as follows:
2012 2013
Fred $120,000 $155,000
Wilma $ 62,000 $ 74,000
Both companies have a 31 December year end and both use the periodic inventory
system.
Retained profits at 1 January 2012 were Fred $100,000 and Wilma $30,000
Assume no dividends paid or declared and no other transfers to/from retained
profits for the 2 years
The income tax rate is 30%
Required: relevant consolidation adjustments for year-end 31 December 2012 and
31 December 2013.
31/12/12
Dr. Sales 32,000
Cr. Purchases 32,000
(To eliminate intra-group sales of inventory made in 2012 by

Fred ($20,000) and by Wilma ($12,000))
31 December 2012
Dr. Closing inventory (I/S) 6,500
Cr. Inventory (B/S) 6,500
(To eliminate unrealised profits in the closing inventory of Wilma $4,000 and
Fred $2,500)
Dr. Deferred tax asset 1,950
Cr. Income tax expense 1,950
(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),

Group Fred Wilma

$ $ $
Reported profit for 2012 182,000 120,000 62,000
Elimination for unrealised profits
in closing inventory (4,550) (1,750) (2,800)
Adjusted profit 177,450 118,250 59,200
Reported retained profits 1/1/12 130,000 100,000 30,000
Retained profits 31/12/12 307,450 218,250 89,200
NCI Memorandum Account 31 December 2012
NCI in current profit:

59,200 x 25%= $14,800
NCI in opening retained earnings:

30,000 x 25%= $7,500
Total NCI = 14,800 + 7,500 = $22,300

31 December 2013
Dr. Sales 56,000

Cr. Purchases 56,000
(To eliminate intra-group sales of inventory made in
2013 by Fred ($6,000) and by Wilma ($50,000)
31 December 2013
Dr. Closing inventory (I/S) 10,000

Cr. Inventory (B/S) 10,000
(To eliminate unrealised profits in the closing inventory of

Wilma $8,000 and Fred $2,000)
31 December 2013
Dr. Deferred tax asset 3,000

Cr. ITE 3,000
(Tax effect of elimination for unrealised profit in closing inventory
of Wilma $2,400 ($8,000 x 30%) and Fred $600 ($2,000 x 30%))
Note: net profit effect on Fred is $1,400 ($2,000URP - $600Tax),

and on Wilma is $5,600 ($8,000URP - $2,400Tax)
31 December 2013
Dr. Retained profits 1/1/13 6,500

Cr. Opening inventory 6,500
(To adjust for unrealised profits in the opening inventory of
Wilma $4,000 and Fred $2,500)
31 December 2013
Dr. Income tax expense 1,950
Cr. Retained earnings 1/1/13 1,950
(Tax effect of unrealised profit in the opening 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)
Group Fred Wilma
$ $ $
Reported profit for 2013 229,000 155,000 74,000
Elimination for unrealised profits in
closing inventory (7,000) (1,400) (5,600)
opening inventory 4,550 1,750 2,800
Adjusted profit 226,550 155,350 71,200
Reported retained profits 1/1/13 312,000 220,000 92,000
opening inventory (4,550) (1,750) (2,800)
Adjusted retained profits 31/12/13 534,000 373,600 160,400
NCI Memorandum Account 31/12/13

NCI in current profit:
71,200 x 25%= $17,800
NCI in adjusted opening retained earnings:

89,200 x 25%= $22,300
Total NCI = 17,800 + 22,300 = $40,100

= 160,400 x 25% = $40,100
Wrapping up 70
This week we looked at reporting for direct non-controlling

interests (DNCI) on consolidation
Consolidation adjusting entries are analysed to ascertain their
impact on the NCIs
The NCI Memorandum Account is then used to calculate the
relevant NCI in the consolidated financial statements
Both the Proportionate Goodwill and 100% Goodwill methods
are allowable methods for calculating goodwill where there
are NCIs
Thats all for now see you next
time! 71

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ACCT7104

1 27/02 Introduction to Consolidation Arthur et al Chapter 1 and 2; AASB 10 Consolidated

Outline the nature of non-controlling (minority) interests

Reading: Arthur et al Chapter 5; AASB 101 Presentation of Financial

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

AASB10.A defines non-controlling interests as:

The parent entity is the entity that has the power to

Control may be exercised directly or indirectly through

Control is exercised through the board of directors of a

Non-controlling interests arise when a parent entity owns less than

Non-controlling interests can be direct or indirect

Consider the following diagrams

80% Direct Parent Interest = 80%

Parent Sub 1 Sub 2

Non-controlling interest - direct - 20% 40%

Total 100% 100% 100%

Parent Sub 1 Sub 2

Non-controlling interest - direct - 20% 15%

Total 100% 100% 100%

Australian reporting requirements for consolidation are based on the

Therefore, 100% of the resources of all subsidiaries are included in

This means that allocations of equities between parent and non

AASB10.22 states that:

Group financial reports are prepared primarily for stakeholders in the

The equity of the parent entitys shareholders is disclosed in detail

The shares held by non-controlling shareholders in two or more

The equity interests of the non controlling shareholders are thus

AASB 101 Presentation of Financial Statements requires disclosure of the following

Non-controlling interests in total comprehensive income for the period: on

Non-controlling interests in total comprehensive income: disclosed in

Assets Group Data (100%)

Equity attributable to the members of the parent

Where a subsidiary is partly owned, only the parents proportionate

Edwin Arthur Vincent Sheldon (1895-1945)

AASB 10 requires full elimination of intercompany

Each relevant category of each subsidiarys equity will

The starting point will always be the subsidiarys

The subsidiarys reported equity figures must be adjusted

When consolidation adjustments are prepared, it is

It is also important to note what category of equity is

Dividends paid by subsidiaries are eliminated proportionately on

Some transactions or events give rise to direct entries to

Dr DTA 3,000 Not equity

Brief Example 1 (continued)

Reported CY profit (Subsidiary B) 40,000

Dr Land 300 Dr Land 300 (Not equity)

Entity concept of group requires full value of all assets in consolidation

However, NCI will need to be allocated part of the revaluation surplus

If 100% owned ($000): If only 80% owned ($000):

Dr Div Rev 250 Dr Div Rev (80%) 200 (CY Profit of Y)

Dr Div Pay 250 Dr Div Pay (80%) 200 (Not equity)

If 100% owned ($000) If only 80% owned ($000)

Dr Retained earnings 70 Dr Retained earnings 70 (RE of Z)

No change because NCI exists

Group basis requires full value of all assets in consolidation

However, NCI will need to be allocated part of RE and

Dr COGS 40 Dr COGS 40 (CY Profit of Z)

Dr DTA 12 Dr DTA 12 (Not equity)

No change because NCI exists

Group basis requires full value of all assets in consolidation

However, NCI will need to be allocated part of current year

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

Calculate the DNCI in consolidated current year profit using a NCI

Alternative allocations of goodwill