Lecture 7 - Lecture 7 Non-controlling Interests OR, Direct...

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Lecture 7 Non-controlling Interests OR, Direct Minority Interest
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Lecture References - AASB 3 Business Combinations, - AASB 127 Consolidated Accounts - AASB 101 Financial Report Presentation and Disclosures 2
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1.Non-controlling interests Example z Company A (parent entity) owns 75% of Company B z Remaining 25% held by investors who are not part of the economic entity z The outside investors are referred to as ‘non- controlling interests’ Non-controlling interest is defined in AASB 127 as: the equity in a subsidiary not attributable, directly or indirectly, to a parent
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75% 100% 100% Parent MI 25% 4
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Non-controlling interest z Occurs where a parent entity owns less than 100% of the equity in a subsidiary z if more than one subsidiary is less than wholly owned, then minority interest is the aggregate of all the minority interests in the group z Look now at Wesfarmers – which subsidiaries have a non-controlling interest? 5
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Control z The requirement to consolidate is based on the criterion of control, but one entity can control another entity with less than 100% of the equity z But the term “Minority” Interest is not a good one as a parent can control another entity with LESS than 50% of the equity – in which case the Minority Interest would actually have a majority shareholding in the subsidiary z A good reason for altering it to “Non-controlling Interest” 6
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Non-controlling interests z Both the parent entity and the non-controlling interests will have an ownership interest in the subsidiary’s profits, dividend payments, and share capital and reserves z As part of the consolidation process, need to work out the amount to be attributed to non-controlling interests
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2. Disclosure requirements Disclosure requirements: non-controlling interests z AASB 127 requires separate disclosure of the non- controlling interest’s share of capital, retained profits or accumulated losses z AASB 127 (par. 27) z 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 z Par. 28 of AASB 127 explains: Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and the non-controlling interests even if this results in the non-controlling interests having a deficit balance
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AASB 101 Presentation of Financial Statements Supports the requirements of AASB 127. See AASB 101 (at paragraph 54 (q) and (r) and
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Lecture 7 - Lecture 7 Non-controlling Interests OR, Direct...

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