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)

Answer 1

a)

As per IFRS 10 "Consolidated Financial Statements"

A parent prepares consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances. [IFRS 10:19]

• it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements
• its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets)
• it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market, and
• its ultimate or any intermediate parent of the parent produces financial statements available for public use that comply with IFRSs, in which subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with IFRS 10.

b) Non Controlling Interests:

Definition:

A non-controlling interest, also known as a minority interest, is an ownership position wherein a shareholder owns less than 50% of outstanding shares and has no control over decisions.

Disclosure:

A parent presents non-controlling interests in its consolidated statement of financial position within equity, separately from the equity of the owners of the parent. [IFRS 10:22]

A reporting entity attributes the profit or loss and each component of other comprehensive income to the owners of the parent and to the non-controlling interests. The proportion allocated to the parent and non-controlling interests are determined on the basis of present ownership interests. [IFRS 10:B94, IFRS 10:B89]

The reporting entity also attributes total comprehensive income to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

c)

The NCI does not affect the consolidation adjustments for intragroup transactions, as the fulleffects of the intragroup transaction are adjusted for on consolidation.In a full consolidation,the accounts are added together in full (100%) and the eliminations/adjustments are made infull (100%).However, where a partly owned subsidiary records profit which is unrealised to the group,this affects the calculation of the NCI.