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In: Accounting

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.

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Expert Solution

The NCI does not affect the consolidation adjustments for intragroup transactions, as the full effectsof the intragroup transaction are adjusted for on consolidation.In a full consolidation, the accountsare added together in full (100%) and the eliminations/adjustments are made in full (100%).

However, where a partly owned subsidiary records profit which is unrealised to the group, this af-fects the calculation of the NCI.

The NCI is entitled only to a share of the consolidated equity rather than subsidiary equity. Hence,where the subsidiary has recorded unrealised profit, the NCI share of the recorded profit of thegroup 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. Asadjustments are made for intragroup transactions, where these transactions reflect adjustments forunrealised subsidiary profit, an adjustment is also made to the NCI share of profit. The net result isthen that the NCI gets a share of realised subsidiary equity.

Examples of transactions that affect the calculation of NCI

(a) Unrealised profits in closing inventory after tax that relate to subsidiary sales-Reduce NCI equity balance (Dr)-

Reduce NCI share of profit (Cr)

(b) Unrealised profits in opening inventory after tax that relate to subsidiary sales-

Increase NCI share of profit (Dr)-

Reduce NCI share of opening retained profits (Cr)-

No effect on NCI equity balance

(c) Unrealised gain after tax from subsidiary transfer of non-current asset-

Reduce NCI equity balance (Dr)-

Reduce NCI share of profit (Cr)

(d) Excess depreciation after tax for plant transferred by subsidiary

-Increase NCI share of profit (Dr)

-Increase NCI equity balance (Cr)


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