Question

Question 4 Week 10

(a) Where the parent company does not hold 100 percent equity of the subsidiary company, what portion of the intra-group transactions between the parent entity and the subsidiary entity will need to be eliminated on consolidation?

b) What is a non-controlling interest, and how should it be disclosed?

(c) How are non-controlling interests affected by intra-group transactions?

(d) What are the three steps we use to calculate total non-controlling interest? (1 mark).

Need a fresh answer not paraphrase.

Answer 1

a) When the parent company does not hold 100 percent equity of the subsidiary company, In that case in consolidated income statements, interest income recognized by the parent and expense recognized by the subsidiary is eliminated. Intercompany loans previously recognized as assets for the parent company and as liability for the subsidiary are eliminated in the consolidated balance sheet, for the purpose of giving a true and fair view. To avoids double counting of assets and liabilities that arise through transaction between members of the group in consolidated income statement all Intra group balance have to be eliminated.

b) When a parent company has a controlling interest more than 50% but lesser than 100% in a subsidiary company that considered as non-controlling interest. To disclose the non-controlling interest the parent company needs to report a separate non-controlling interest lines on its balance sheet and income statement.

c) Non-controlling interests group is not permitted to take credit for the share of profit, has no control over the decision of parent company. Intra-group transactions are eliminated in consolidated statement.

d) Three steps to calculate total non-controlling interest are,

NCI share of opening net asset of subsidiary + NCI share of unamortized fair value differential + net income attributable to NCI – (dividend paid to non-controlling shareholders) = Non-controlling interest at the date of consolidation.