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Week 520 Jan. (DM)

Lecture Topic 9

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

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.

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.