Topic 8 Consolidation: non-controlling interest 1
Agenda 1.Discuss the nature of the non-controlling interest (NCI)2.Describe full goodwill method and partial goodwill method3.Describe how to calculate the NCI share of equity4.Prepare worksheet entries for NCI share of equity at acquisition date5.Prepare worksheet entries for NCI share of equity subsequent to acquisition date6.Explain how the calculation of the NCI is affected by the existence of intragroup transactions 2
The nature of NCI Topic 1 3
Non-controlling interest explained Calculation of the NCI share of equity • NCI is entitled to a share of the equity of the subsidiary • Adjusted for the effects of profits and/or losses made on intragroup transactions Disclosures of the NCI • Statement of P/L and OCI • Statement of changes in equity • Statement of financial position 25% NCI 5
Effects of an NCI on the consolidation process P Ltd. S Ltd. Adjustments Group Non- controlling interests Parent $’000 $’000 DR CR DR CR Other Assets Invt in S Ltd 225 225 - Share capital 500 100 75 525 25 500 Retained earnings 600 200 150 650 50 600 Total equity: parent 1,100 Total equity: NCI 75 75 1,175 Consolidation worksheet Note the change to the format of the worksheet – 3 extra columns 6
Effects of an NCI on the consolidation process • The existence of the NCI impacts on the – Acquisitions analysis – BCVR entries and pre-acquisition eliminations • AASB 3 Business Combinations (para. 32) requires: Goodwill at acquisition date be measured as the excess of (a) over (b) below (a) the aggregate of (i) consideration transferred – usually acquisition-date fair value; (ii) the amount of any non-controlling interest ; and (iii) the acquisition date FV of the acquirer’s previously held equity interests (if the combination is achieved in stages) (b) the FVINA • AASB 3 allows two methods to measure NCI, which impacts on the measurement and treatment of goodwill: – Full goodwill method – Partial goodwill method 7
NCI and Goodwill Topic 2 8
Effects of an NCI on the consolidation process Full goodwill method • NCI measured at fair value on the basis of market price for shares not acquired by the parent • NCI receives a share of goodwill • Example: – A Ltd acquired 60% of B Ltd for a cost of $150,000 – NCI in B Ltd had a fair value of $95,000 – Equity of B Ltd was $220,000 comprising share capital of $100,000 and retained earnings of $120,000. All amounts were recorded at fair value Consideration + NCI = 245,000 FVINA = 220,000 Goodwill = 25,000 9
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- Three '11
- Accounting, NCI, Generally Accepted Accounting Principles