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Unformatted text preview: 1 Week 11 4 Oct. (JK) Lecture Topic 11 Consolidation: Non-controlling interest Describe the nature of non-controlling interest and the allocation issue in consolidation accounting Prepare consolidation journal entries for the non-controlling interest o Pre-acquisition capital and reserves o Post-acquisition reserves o Current net profit o Unrealised profits and excess depreciation Prepare comprehensive consolidation worksheet Tutorial Questions: Picker et al, Ch.25 DQ12 Exercise 25.2 Parts1,2 Practice Questions: Picker et al, Ch.25 DQ1, DQ2, DQ3, DQ4, DQ5 Exercise 25.4 (Altered) Exercise 25.5 Exercise 25.9 Chapter 25: Consolidation: Non-controlling interest DISCUSSION QUESTIONS 1. What is meant by the term non-controlling interest (NCI)? NCI is the term used for the ownership interest in a subsidiary other than the parent. It is defined in para 4 of AASB 127 as: The equity in a subsidiary not attributable, directly or indirectly, to a parent. 2. Explain whether the NCI is better classified as debt or equity. The main argument for the NCI being classified as equity is that it better fits the definition of equity. The subsidiary has no present obligation in relation the NCI so the NCI does not meet the definition of a liability. As explained in Chapter 22, many argue that NCI should be disclosed separately from equity and liabilities the mezzanine treatment. This argument relates to the utility of financial statements in relation to the user group, the parent shareholders. It is argued that this form of presentation provides more relevant information to the parent shareholders. 3. Explain whether the NCI is entitled to a share of subsidiary equity or some other amount. If the NCI is classified as equity, it represents an interest in the consolidated equity. Note that the consolidated equity of relevance to the NCI is the subsidiary equity adjusted for the effects of intragroup transactions that is, realised subsidiary equity. 2 4. How does the existence of an NCI affect the business combination valuation entries? There is no effect on the accounting entries as such. Why? The BCVR entries, apart from that for goodwill, are prepared because of the requirement of AASB 3 to show the identifiable assets and liabilities of the acquiree at fair value. The determination of fair value is not affected by the parents ownership in the subsidiary. However if the full goodwill method is used the amount of goodwill recognised will be greater than where the partial goodwill method is used 5. How does the existence of an NCI affect the pre-acquisition entries? The pre-acquisition entry eliminates the investment account recorded by the parent and the pre-acquisition equity of the subsidiary, as well as recognising any gain on bargain purchase....
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This note was uploaded on 10/31/2011 for the course ACCT 2542 taught by Professor Knapp during the Three '11 term at University of New South Wales.
- Three '11