Question

A new employee has been given responsibility for preparing the consolidated financial statements of Sample Company. After attempting to work alone for some time, the employee seeks assistance in gaining a better overall understanding of the way in which the consolidation process works. You have been asked to assist in explaining the consolidation process. The employee is asking you to respond to the following questions:

PLEASE SHOW YOUR WORK:

1. How is the beginning-of-period non-controlling interest balance determined?
2. How is the end-of-period non-controlling interest balance determined? Provide an example.
3. Which of the subsidiary’s account balances must always be eliminated? Why?
4. Which of the parent company’s account balances must always be eliminated? Why?

Answer 1

• Begining of Period non controlling interest balance can be calculated either by share in fair value of subsidiary's net assets at acquisition date or NCI share of opening opening net asset of subsidiary.
• Non-controlling interest (NCI) on balance sheet date (end-of-period) will be the proportionate share of NCI in fair value of subsidiary's net assets at acquisition (begining of period) date and retained earning (+) Any Other Income Attributable to NCI since Acquisition (-) Dividend paid to NCI holder and Share in any amortisation.

Example:-

NCI share in subsidiary Asset on 1st Jan : $300,000

Add: NCI Share in Retained Earning : $30,000

Add: Income Attributable to NCI : $15,000

Less: NCI share in amortisation : (5,000)

Less: Dividend paid to NCI holders :    (15,000)

NCI on Balance/Consolidation Date : $325,000

• Assets and the stockholder's equity must be eliminated that arised from inter company transaction between parents and subsidiary company for the purpose of ownership of subsidiary by parents company.