HI5020

Corporate Accounting
Session 9a

Accounting for Non-controlling

Interests
 Session Learning Objectives
Understand the meaning and nature of non-
controlling interests
Know how to calculate the non-controlling interests’
share in share capital and reserves, and current
period profit or loss and other comprehensive income
Know how to calculate goodwill or bargain gain on
purchase in the presence of non-controlling interests
Know how to disclose non-controlling interests
within consolidated financial statements.
Simple Group Structure that includes Non-
Controlling Interest
 What is Non-Controlling Interest
Accounting standard 10 Consolidation Financial
Statements defines a non-controlling interests as “the
equity in a subsidiary not attributable, directly or
indirectly, to a parent”.
Non-controlling Interest – Disclosure
Non-controlling Interest – Disclosure
Non-controlling Interest – Disclosure
Non-controlling Interest – Disclosure
 Calculating non-controlling interests

Non-controlling interests are ‘identified’ but not eliminated as part of

the consolidation process
They are identified for disclosure purposes
The parent’s investment in the subsidiary is eliminated only against
the parent’s share of the subsidiary’s owners’ equity at acquisition
date
The non-controlling interest’s share of equity is not eliminated, but is
separately identified so that the non-controlling interest’s share can be
specifically shown in the consolidated financial statements
The dividends paid and payable by the subsidiary to the non-
controlling interest will be included within the consolidated financial
statements
 Calculating non-controlling interests

The inclusion of non-controlling interests in the consolidated

statement of financial position is consistent with the entity concept,
according to which the non-controlling interest is viewed as an owner
within the group, in the same way as the shareholders of the parent
entity
Where there are intragroup transactions, any related profit or loss
should be eliminated in full as part of the consolidation process, not
merely the percentage of the profit or loss equal to the parent entity’s
interest in the subsidiary
 Effects of MI on Consolidation Process

Business Combination Valuation Entries

The revaluation entry is unaffected by the
existence of the MI for differences between
carrying amounts & fair values at acquisition
date
 Calculation of MI Share of Equity
AASB 127 Para. 22(c) minority interests in the
net assets consists of:
i. The amount of those MI at the date of the
original combination &
ii. The minority’s share of changes in equity
since the date of the combination

Calculation of MI is done in two stages

1. MI share of recorded equity is determined
2. This share is adjusted for the effects of
intragroup transactions
 Calculating non-controlling interests

As a result of recent amendments, AASB 3 provides preparers

of financial statements with a choice in the measurement of the
non-controlling interest
According to paragraph 19 of AASB 3, for each business
combination the acquirer shall measure any non-controlling
interest in the acquiree either:
• at fair value (including goodwill), or Full goodwill method
• at the non-controlling interest’s proportionate share of
the acquiree’s identifiable net assets (excluding goodwill),
Partial goodwill method
• While the IASB allows for both full goodwill method and
partial goodwill method, the FASB allows for only full
goodwill method.
 MI Share of Recorded Equity of the Subsidiary

MI share is calculated in three steps

1. Determine the MI share of equity of the
subsidiary at acquisition date
2. Determine the MI share of the change in
subsidiary equity between the acquisition
date & the beginning of the current period for
which the consolidated financial statements
are being prepared
3. Determine the MI share of the changes in
subsidiary equity in the current period
Calculation of Minority Interest

15
 Elimination of Pre-acquisition Share Capital &
Reserves
In previous sessions, carrying values of
subsidiaries assets were required to be adjusted
to fair value prior to elimination of the parent
entity’s investment. From that point, Goodwill
was correctly determined.
We will now look at how elimination of pre-
acquisition share capital & reserves where non-
controlling interests are involved.
 Example: Accounting at Acquisition Date
On July 1 2014, Hans Ltd acquired 70% of share capital of
Solo Ltd for $1,200,000. Equity of Solo Ltd was:
Share capital $1,050,000
Revaluation surplus $ 300,000
Retained earnings $ 150,000
All assets of Solo Ltd were recorded at FV on acquisition
except for a piece of equipment that had a higher FV
($50,000) than its carrying amount. Cost of equipment was
$300,000, accumulated depreciation of $196,000. Tax rate is
30%.
Req. Prepare the consolidation elimination and adjustments to
recognise the pre-acquisition capital and reserves of Solo Ltd,
assuming that the non-controlling interest was measured at
the proportionate share of the acquiree’s identifiable net
assets.
 Elimination of the Investment – Step 1
Solo Ltd Hans Ltd 30% NCI
Elimination of investment in Solo Ltd. (S) $,000 (P) $,000 $,000
Fair value of consideration transferred 1,200
Less: FV of identifiable assets acquired &
liabilities assumed
Share capital on acquisition date 1,050 735 315
Revalue surplus-acquisition date 300 210 90
Retained earnings-acquisition date 150 105 45
Revaluation surplus
(Fair value adjustment) [$50,000 x (1-tax rate)] 35 24.50 10.50
Total 1,535 1,074.50
Goodwill on acquisition 125.50
Non-controlling interest 460.50
THE END