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Unformatted text preview: 7/11/2011 1 Chapter 25 Consolidation: non-controlling interest Prepared by Emma Holmes • AASB 127 defines non-controlling interest as “that portion of equity of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent Nature and calculation of NCI • Recall from chapter 22, that non-controlling interests are classified as a contributor of equity to the group • NCI is presented and identified within equity separately from the parent’s equity • The NCI is entitled to a share of the consolidated equity. The remainder of this lecture will examine how the NCI’s share of equity is calculated Acquisition analysis, BCVR entries and pre-acquisition eliminations Impact depends on the treatment of goodwill. Two options: Full goodwill method Partial goodwill method Effects of NCI on the consolidation process Partial goodwill method The investment is eliminated against parent’s share of subsidiary’s pre acquisition equity. Intragroup transactions The full effect of intragroup transactions are adjusted on consolidation regardless of the ownership interest held by the parent Dividends are an exception 7/11/2011 2 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 – A Ltd acquired 60% of B Ltd for a cost of $150,000 – 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 – NCI in B Ltd had a fair value of $95,000 Consideration + NCI 245,000 FVINA 220,000 Goodwill 25,000 Full goodwill method BCVR entry DR Goodwill 25,000 CR BCVR 25,000 100% of goodwill recognised Pre-acquisition elimination entry DR Retained earnings 72,000 DR Share capital 60,000 DR BCVR* 18,000 CR Shares in B Ltd 150,000 60% of equity balances eliminated BCVR relating to parent’s goodwill *Cost $150,000 – share of FVINA ($220,000 * 60%) = $18,000 Partial goodwill method • NCI measured at their proportionate share of acquiree’s identifiable net assets • NCI does not receive a share of goodwill • Example: – A Ltd acquired 60% of B Ltd for a cost of $150,000 – 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....
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