Indirect non controlling interests is to distinguish

indirect non-controlling interests is to distinguish between:
Pre-acquisition equity of the subsidiary
These amounts are only allocated to the DNCI (STEP 1)
AND
Post acquisition movements of equity of the subsidiary
These amounts are allocated to the DNCI and the INCI
(STEPS 2 & 3)
Note that any pre-acquisition movements
occurring in steps 2 or 3 are allocated to the
DNCI only

Sequential acquisition: DNCI & INCI
Lecture example:
P Ltd. acquired 70% interest in S Ltd. on 1 July 2014 for $70,000
when the equity of S Ltd comprised:
Share capital 60,000
Retained earnings 33,000
$93,000
On that same day, S Ltd acquired 60% interest in T Ltd for $35,000,
when the equity of T Ltd comprised:
Share capital 35,000
Retained earnings 15,000
$50,000

Sequential acquisition: DNCI & INCI
Lecture example:
The equity of S Ltd and T Ltd on 30 June 2015 and 30 June 2016 are
summarised below
S Ltd
30/6/15 30/6/16
Share capital $60,000 60,000
Retained earnings 45,000 55,000
105,000 115,000
T Ltd
30/6/15 30/6/16
Share capital $35,000 35,000
General reserve 5,000 5,000
Retained earnings 18,000 23,000
58,000 63,000

Sequential acquisition: DNCI & INCI
Lecture example:
•
At acquisition S Ltd held inventory which was recorded at $10,000 below fair
value. All of this inventory was sold by 30 June 2015
•
At acquisition T Ltd had plant which was recorded at $5,000 below fair value.
The plant has a remaining useful life of 5 years
•
During the year ended 30 June 2016, S Ltd made a profit of $18,000 and paid
a dividend of $8,000
• During the year ended 30 June 2016, T Ltd made a profit of $30,000 and paid
a dividend of $25,000.
• The profit of $30,000 in T Ltd’s books includes an unrealised profit of $10,000
on the sale of inventory to P Ltd. Total inter-entity sales during the year were
$25,000.
Required:
• Prepare the consolidation journals as at 30 June 2016 for the P Ltd group

Example – acquisition analysis P’s inv. in S S’s inv. in T
Consideration transferred 70,000 35,000
Book value of net assets
- Share capital 60,000 35,000
- Retained earnings 33,000 15,000
Total BV of net assets 93,000 50,000
FV (BCVR) adjustments
- Inventory 7,000 -
- Plant - 3,500
Total fair value adjustments 7,000 3,500
FVINA 100,000 53,500
X %age acquired 70% 70,000 60% 32,100
2,900
Note that a separate acquisition analysis is required for each subsidiary.
The analysis is based on the ownership by the immediate parent
Sequential acquisition: DNCI & INCI
Note also
the partial
goodwill
method is
used in this
example

Sequential acquisition: DNCI & INCI
Example – Y/E 30 June 2016 – BCVR entries
DR Plant 5,000
CR DTL 1,500
CR BCVR 3,500
DR Dep’n expense 1,000
DR Ret. earnings (1/7/16) 1,000
CR Accum depreciation 2,000
DR DTL 600
CR ITE 300
CR Retained earnings (1/7/16) 300
(i)