Topic 10

Consolidation:
non-controlling interest
Chapter 21

Learning objectives
1. Discuss the nature of the non-controlling interest (NCI)
(p. 1048)
2. Explain the effects of the NCI on the consolidation process
(p. 1051)
3. Explain how to calculate the NCI share of equity (p. 1058)
4. Explain how the calculation of the NCI is affected by the
existence of intragroup transactions (p. 1071)

Non-controlling interest
explained
Nature of the non-controlling interest (NCI)
AASB 10 Consolidated Financial Statements, defines
non-controlling interest as:
equity in a subsidiary not attributable, directly or
indirectly, to a parent

AASB 10 (para. 22) NCI:

Is to be identified and presented within equity, separately
from the parent shareholders equity

As such, NCI
Is regarded as a contributor of equity to the group
Is not a liability
Receives a share of the consolidated equity and therefore
participates in the residual equity of the group
3

Non-controlling interest
explained

Calculation of the NCI share of equity

NCI is entitled to a share of the equity of the
subsidiary
Adjusted for the effects of profits andor losses made
on intragroup transactions
Disclosures of the NCI
Figure 21.2 Statement of P/L and OCI
Figure 21.3 Statement of changes in equity
Figure 21.4 Statement of financial position
4

Effects of an NCI on the

consolidation process
The existence of the NCI impacts on the

Acquisitions analysis
BCVR entries and pre-acquisition eliminations

AASB 3 Business Combinations (para. 32) requires:

Goodwill at acquisition date be measured as the excess of (a)
over (b) below
(a) the aggregate of
(i) consideration transferred usually acquisition-date fair
value;
(ii) the amount of any non-controlling interest; and
(iii) the acquisition date FV of the acquirers previously held
equity interests
(if the combination is The
achieved
in stages)
investment
is eliminated
(b) the FVINA
against the parents share of the

substo
pre-acquisition
equitywhich
AASB 3 allows two methods
measure5 NCI,
impacts on the measurement and treatment of

Effects of an NCI on the

consolidation process
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
NCI in B Ltd had a fair value of $95,000
Equity of B Ltd comprising share capital of $100,000 and
retained earnings of $120,000. All amounts were recorded
at fair value
Consideration + NCI (150,00+95,000) =
245,000
FVINA (100,000+120,000)
= 220,000
Goodwill
= 25,000
6

Effects of an NCI on the

consolidation process
Partial goodwill method
NCI is measured at their proportionate share of
acquirees identifiable net assets
NCI does not receive a share of goodwill
The only goodwill recognised is that acquired by the
parent
Hence the name partial goodwill method

Example:
A Ltd acquired 60% of B Ltd for a cost of $150,000
Equity of B Ltd comprising share capital of $100,000 and
retained earnings of $120,000. All amounts were recorded
= 150,000
at Consideration
fair value
FVINA (100,000+120,000 x 60%)
= 132,000
Goodwill
= 18,000
7

Effects of an NCI on the

consolidation process
SC (100,000x60%)

60,000

RE (120,000x60%)

72,000

GW

18,000

Share in B Ltd

150,000

Effects of an NCI on the

consolidation process
Intragroup transactions
The full effect of intragroup transactions are
adjusted on consolidation

Regardless of the ownership interest held by the parent

The only exception to this is dividends

Refer to the discussion in CH 20

Calculating the NCI share of

equity
Recall that NCI is measured at their proportionate
share of acquirees identifiable net assets
Non-controlling interests in the net assets consists
of:
The amount of the NCI at the date of the combination
The non-controlling interests share of changes in equity
since the date of the combination

This last amount is broken into two periods, as shown on the

next slide

The calculation of the NCI is done in two stages:

(1) the NCI share of recorded equity is measured
(2) this share is adjusted for the effects of intragroup
transactions
10

Calculating the NCI share of

equity

share of recorded equity of the subsidiary

Share of
equity at
acquisition
date

Share of change in equity

from acquisition date to
beginning of current year

Share of change
in equity in
current period

1
Acquisitio
n Date

Beginning
of current
period
Calculation of NCI share of equity is

11

End of
current
period

Lecture Illustration
Lecture example
P Ltd acquired a 60% interest in S Ltd on 1 July 2014
for $60,000
On the same date, the balance of shareholders
equity of S Ltd comprised:
Share capital
$40,000
General reserve
2,000
Retained earnings
20,000
62,000
All assets are recorded at their fair values except for
an item of plant, which had a fair value of $200,000
and a carrying amount of $180,000 (original cost
$250,000). The remaining useful life of the plant at
the date of acquisition is 5 years
12
The fair value of the NCI in S Ltd on 1 July 2014 was

Lecture Illustration
At 30 June 2016 & 2017 the equity balances of S Ltd
are:
30/6/16 30/6/17
Share capital
40,000 40,000
General reserve
3,000
3,000
Retained earnings
45,000 75,000
88,000 118,000

13

Lecture Illustration
On 1 June 2016, S Ltd sold inventory to P Ltd for
$100,000, at a profit before tax of $20,000. All
inventory is unsold at 30 June 2016. The inventory is
sold to external parties by P Ltd on 15 July 2016
S Ltd recorded a profit of $40,000 for the year ended
30 June 2017 and paid a dividend of $10,000 on 1
January 2017
Required:
Prepare all consolidation journals required at 30
June 2017 assuming the use of the partial goodwill
method
14

K45PU
Step 1: Acquisition Analysis
FVINA = [40,000+2,000+20,000+20,000x0.7 ] x 60%
= 45,600
Consideration = 60,000
GW = 14,400

15

Step 2: BCVR Entries

Acc Depn

70,000

Plant

50,000

DTL

6,000

BCVR

14,000

Dep Exp (20,000/5)

4,000

RE (20,000/5 x 2)

8,000

Acc Depn

DTL

12,000

3,600

ITE
RE

1,200
16

2,400

Step 3: Pre-Acquisition Entry

SC (40,000x60%)

24,000

GR (2,000x60%)

1,200

RE (20,000x60%)

12,000

BCVR (20,000x0.7x60%)
GW

8,400
14,400

Shares in S

60,000

17

Step 4: Intragroup Transactions

Entries
RE

14,000

ITE

6,000

COS

20,000

Dividend Revenue (10,000x60%)

6,000

Dividend Paid

6,000

18

Step 5 (i) NCI share of equity

at acquisition date
SC (40,000x40%)

16,000

GR (2,000x40%)

800

RE (20,000x40%)

8,000

BCVR (20,000x0.7x40%)

5,600

NCI

30,400

19

Step 5 (ii) NCI share of post-acq

changes in equity
GR (3000-2000 x 40%)

400

NCI

RE (45,000-20,000 x 40%)

400

10,000

NCI

NCI (20,000x0.7x40%)

10,000

5,600

RE

NCI (20,000/5 x 2 x 0.7 x 40%)

See alternative on slide 22-24.

RE

5,600

2,240
20

2,240

Step 5 (iii) NCI share of current

period
changes in equity
NCI share of profit (40,000x40%)

16,000

NCI

NCI (20,000/5 x 0.7 x 40%)

16,000

1,120

NCI share of profit

NCI share of profit (20,000 x 0.7 x 40%)

1,120

5,600

NCI

NCI (10,000 x 40%)

Dividend paid

5,600

4,000
21

4,000

Calculating the NCI share of

equity
NCI Step 2 allocation
The purpose of this step in the NCI allocation
process is to allocate a share of all movements in
equity from the date of acquisition to the end of the
previous reporting period to the NCI
Such movements are found in:
Opening post-acquisition retained earnings; and
Reserves
Opening post acquisition retained earnings need to
be adjusted for the effect of any relevant
consolidation journals prior to the NCI allocation
being performed
22

Calculating the NCI share of

equity
NCI Step 2 allocation
The NCI share of opening post acquisition retained
earnings is calculated as follows:
Opening retained earnings (30/6/16)
Less: pre-acquisition retained earnings
Post acquisition retained earnings

45,000
(20,000)
25,000

Depreciation expense on plantJournal (ii): 8,000

(5,600)
3,600
Unrealised profit in opening inventory
Journal (v): 20,000 (14,000)
Adjusted retained earnings
X NCI share @ 40%

6,000

5,400
2,160
23

Calculating the NCI share of

equity
NCI Step 2 allocation
In addition to the share of retained earnings there
has also been a movement in the general reserve
since the date of acquisition
The movement is $1,000 ($3,000 - $2,000)
The NCI share of this is $400
DR General reserve
400
DR Retained earnings (Op. Bal.) 2,160
CR NCI
2,560
(vii) NCI share of opening post-acquisition equities (STEP 2)

24

Calculating the NCI share of

equity
NCI Step 3 allocation
The purpose of this step in the NCI allocation
process is to allocate a share of all current year
movements in equity to the NCI
Such movements arise from:
Current year profit
Current year dividends
Current year reserve movements
N/A in this
example

Current year profits need to be adjusted for the

effect of any relevant consolidation journals prior to
the NCI allocation being performed
25

Calculating the NCI share of

equity
NCI Step 3 allocation
The NCI share of current year profit is calculated as
follows:
Current year profit
Depreciation expense on plant

Journal (ii): 4,000

1,200
Journal (v): 20,000
6,000

40,00
0
(2,800
)

Increase due to profit in opening inventory

14,00
0

Adjusted current year profit

51,20
0

X NCI share @ 40%

26

20,48

Calculating the NCI share of

equity
NCI Step 3 allocation
DR NCI share of profit
CR NCI
DR NCI
CR Dividends paid

20,480
20,480
4,000

4,000

27

Tutorial Week 11
Chapter 21
RQ 1, 4, 5, 8
PQ 21.1(B), 21.6, 21.9, 21.11, 21.14(A)
Prepare the consolidation worksheet entries for all the practice
questions.

In-Class Test*
*if you are unable to attend the tutorial you are allocated to, please attend any one of
the six tutorials available.
All students are expected to have attempted all tutorial problems before attending
the tutorial. Specifically, the question(s) that has been bolded.
For further understanding, you are encouraged to attempt Demonstration Problem.