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Unformatted text preview: Week 10 Practice Questions In the tax-effect versions of the solutions to practical questions, it is assumed that the tax rate is 30%. The tax effect versions are numbered 21.00t. Unlike chapters 18 to 20, because it is assumed that students are now proficient with the application of tax-effect accounting to the consolidation process, detailed explanations are not provided. 21.1 Explain the meaning of the term direct non-controlling interest. Non-controlling interest (NCI) is the ownership interest of those shareholders who hold the other shares in a subsidiary that are not owned by the immediate parent or other group members. A NCI is said to be direct when its shareholding is in the subsidiary itself. The NCI interest will be indirect if it refers to other entities in which that subsidiary has itself invested. Where the entity concept applies, as in Australia, these other shareholders are not external to the group; on the contrary, they provide equity capital to the group entity and are part owners of it. They are ‘outsiders’ only from the perspective of the parent and its shareholders, a perspective which is alien to the entity concept. With other concepts of the group, however, NCI does not represent owner’s equity and may then be truly regarded as the claims on group assets of parties external to (outside) the group entity, similar to liabilities. 21.2 AASB 127 requires that NCI be reported as a separate item of owners’ equity. Discuss the effect of this requirement on the consolidation process. Separate disclosure is inconsistent with the underlying entity concept The essence of the entity concept is that the group is a single cohesive entity and that it raises equity capital from shareholders. It does not matter which part of the entity the capital is channelled into, consequently all ordinary shares in the parent and the subsidiaries form a homogenous collection of shareholdings. This is the same argument that applies to the single company. We do not distinguish ordinary shares that were issued by a company at different times or used to finance different activities. Separate disclosure requires us to perform arbitrary allocations AASB 101 specifies the separate disclosure in the consolidated financial statements, of: ● NCI in the period consolidated profit or loss (AASB 101.83(a)); ● NCI in consolidated total comprehensive profit of the period, (AASB 101.83(b)); ● NCI in total consolidated owners’ equity (AASB 101.54(q)); and ● NCI in total comprehensive profit in the Statement of Changes in Equity (AASB 101.106(a)). These requirements are captured in the specimen financial statements provided in chapter 12 (figures 12.1 to 12.3). In table 21.1 an alternative columnar presentation is given for owners’ equity in the balance sheet extract, and for the comprehensive profit statement. All the equity items mentioned above are reported in total, which is then split into amounts attributed to the parent shareholder interest (in worksheets...
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This note was uploaded on 10/25/2011 for the course ACCT 5942 taught by Professor Diane during the Three '11 term at University of New South Wales.
- Three '11