Chapter 26
Consolidation: indirect
ownership interests
Prepared by
Emma Holmes
Consider the following group structure:
P
T
S
70%
60%
•
P controls S and S controls T
•
S and T are both
subsidiaries of P
•
P would have to consolidate S and T into the one
group
NCI
S
30%
NCI
T
40%
Direct and indirect
noncontrolling interest
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•
This structure requires the recognition of:
•
DNCI –
direct noncontrolling interest
•
INCI –
indirect noncontrolling interest
•
The interests of all parties in this group are summarised as
follows:
Direct and indirect
noncontrolling interest
S
T
Parent Interest
Direct
Indirect
Noncontrol Interest
Direct
Indirect
Total ownership interests
70 %


42 %
30 %
40 %

18%
100%
100%
•
T is part of the “P Ltd Group” (and will therefore be
consolidated), despite the fact that the total NCI in T
is > 50% (it is 58%)
•
This is because we use different rules to determine
•
WHO to consolidate, as opposed to
•
HOW to consolidate
•
To determine WHO to consolidate, we must ask
ourselves “who does P control?”.
As P controls S
and S controls T, then P controls both S and T.
Therefore P should consolidate S AND T
•
When it comes to HOW to consolidate, we need to
recognise that P only has a 42% interest in T
Direct and indirect
noncontrolling interest