Question

In: Accounting

1. When identifying the NCI share of equity explain how intragroup transactions can influence the calculation....

1. When identifying the NCI share of equity explain how intragroup transactions can influence the calculation.

2. Why are intragroup transactions adjusted for on the consolidation worksheet?

250 each

Solutions

Expert Solution

SOLUTION

1.

The NCI does not affect the adjustment itself, as the full effects of the intragroup transaction are adjusted for on consolidation. However, where the subsidiary records profit which is unrealised to the group, this affects the calculation of the NCI. The NCI is entitled only to a share of consolidated equity rather than subsidiary equity. Hence, where the subsidiary has recorded unrealised profit, the NCI share of the recorded profit of the group must be adjusted for any of that profit which is unrealised. In the Step 2 & Step 3 calculations of the NCI share of equity, this is a share of recorded equity. As adjustments are made for intragroup transactions, where these transactions reflect adjustments for unrealised subsidiary profit, an adjustment is also made to the NCI share of profit. The net result is then that the NCI gets a share of realised subsidiary equity.

2.

The consolidated financial statements are the statements of the group, i.e. an economic entity consisting of a parent and its subsidiaries. These consolidated financial statements then can only contain revenues, expenses, profits, assets and liabilities that relate to parties external to the group.

Adjustments must be made for intragroup transactions as these are internal to the economic entity, and do not reflect the effects of transactions with external parties. This is consistent with the entity concept of consolidation, which defines the group as the net assets of the parent, together with the net assets of the subsidiaries. Transactions between these parties internal to the group must be adjusted in full.


Related Solutions

When identifying the NCI share of equity explain how intragroup transactions can influence the calculation.
When identifying the NCI share of equity explain how intragroup transactions can influence the calculation.
When identifying the NCI share of equity explain how intragroup transactions can influence the calculation.
When identifying the NCI share of equity explain how intragroup transactions can influence the calculation.
When calculating the NCI share of equity the step approach is used. Demonstrate the step approach,...
When calculating the NCI share of equity the step approach is used. Demonstrate the step approach, explaining in detail each journal entry, using the following information: Time Ltd acquired 90% of Out Ltd for $252,000 cash on 1 July 2018. At that date the equity of Out included the following:        Share Capital          $200 000        Retained Earnings              80 000                                    280 000 On 30 June 2020, Out Ltd provided the following information: Profit after tax               $ 40 000...
How are non-controlling interests affected by intragroup transactions?
How are non-controlling interests affected by intragroup transactions?
a) Explain the rationale for the elimination of intragroup transactions in the preparation of consolidated financial...
a) Explain the rationale for the elimination of intragroup transactions in the preparation of consolidated financial statements? List five different types of intragroup transactions within the group structure which need to be eliminated for consolidation purpose. b) Briefly explain how goodwill arising on a business combination is initially recognised and subsequently measured. c) There are two broad types of joint arrangements referred in AASB 11 Joint Arrangements. How do you differentiate these two types of joint arrangement?
When significant influence does exist, the equity method of accounting must be used. Explain how the...
When significant influence does exist, the equity method of accounting must be used. Explain how the fair market method and the equity method of accounting for equity securities differ.
Maggie Ltd owns all the share capital of Taylor Ltd. The following intragroup transactions took place...
Maggie Ltd owns all the share capital of Taylor Ltd. The following intragroup transactions took place during the periods ended 30 June 2022 or 30 June 2023. During the period ended 30 June 2022, Taylor Ltd paid an interim dividend of $40 000 out of pre-acquisition profits. As a result, the investment in Taylor Ltd is considered to be impaired by $40 000. On 30 June 2022, Taylor Ltd declared a final dividend of $25 000 out of post-acquisition profits....
Peter Chou is the general manager of Madari Ltd. He believes that intragroup transactions can be...
Peter Chou is the general manager of Madari Ltd. He believes that intragroup transactions can be included within consolidated financial statements as long as the transaction represents fair value. That is, the value of the transaction is equivalent to an ‘arm’s length’ transaction. Required Prepare a persuasive, but concise (at least 350 words), response to Peter Chou. Mr Chou is not an accountant so ensure that your explanation is understandable to a nonaccountant.
1. AASB 127 requires that NCI be reported as a separate item of owners’ equity. Discuss...
1. AASB 127 requires that NCI be reported as a separate item of owners’ equity. Discuss the effect of this requirement on the consolidation process. 2. Discuss whether there are differences in principle or detail in the way current- and prior-year intra-group transactions influence the calculation of NCI.
Identifying and Analyzing Financial Statement Effects of Stock Transactions The stockholders' equity of Verrecchia Company at...
Identifying and Analyzing Financial Statement Effects of Stock Transactions The stockholders' equity of Verrecchia Company at December 31, 2011, follows: Common stock, $ 5 par value, 350,000 shares authorized; 150,000 shares issued and outstanding $ 750,000 Paid-in capital in excess of par value 600,000 Retained earnings 346,000 During 2012, the following transactions occurred: Jan. 5 Issued 10,000 shares of common stock for $12 cash per share. Jan. 18 Purchased 4,000 shares of common stock for the treasury at $14 cash...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT