Topic 3 Part 2

Complex Group Structure

1
 Learning Objectives:
To understand complex group structure
To calculate the direct and indirect interest for group and
NCI
To prepare the consolidated financial statements for complex
group using:
1. Stage by stage method
2. One stage method
To account change in ownership and step acquisition in
complex group
To deal with loss-making subsidiaries

2
 Group Structures
Multiple direct subsidiary
Father-son-grandson (Vertical Group)
Mixed Group (Connection affiliation)
Cross holding (reciprocal shareholding)

3
 Multiple Direct Subsidiaries
Parent owns shares directly in more than one subsidiary,
known as a group of multiple direct subsidiaries:

Parent

70% 60% 90%

Sub. Sub. Sub.

A B C

4
 Multiple Direct Subsidiaries..(cont)
For each acquisition (subsidiary), the cost of investment & NCI are
compared with the fair value of identifiable net assets to determine
the goodwill

Same consolidation adjustment technique applied for each

subsidiary

Goodwill, NCI and post-acquisition reserves of each individual

acquisition are then combined for presentation in CFS

5
 Father-Son-Grandson Structure
The parent company holds a controlling interest in a subsidiary, which in
turn has a controlling interest in another company
Parent’s interest in a subsidiary is held indirectly via one or more other
subsidiaries
Parent’s and NCI’s interest in the
subsidiaries can be determined as follows:
Ultimate Parent AABhd
BB Bhd CC Bhd
Parent interest:
60% Direct 60%
40% Indirect: 60% x 75% 45%
NCI Direct Subsidiary BB Bhd 45%
(60% x 75%) NCI:
Direct 40% 25%
30% 75% Indirect: 40% x 75% 30%

NCI Indirect Subsidiary CC Bhd 55%

25%
100% 100%
 BB Bhd. is immediate parent of CC Bhd
6
 Father-Son-Grandson Structure..(cont)
In practice, if BB Bhd. not wholly-owned by AA Bhd., 2 sets of group
accounts must be prepared
 BB Bhd. and its subsidiary CC Bhd.
 AA Bhd. and its subsidiary BB sub-group
 
If BB Bhd. is wholly-owned by AA Bhd. it need not present group
accounts
 MFRS 10 - wholly-owned or a partially-owned subsidiary of
another entity allowable… (Para 4)
 Co Act 2016 - only wholly-owned parents to be exempted from
presenting CFS.

7
 Indirect Subsidiaries
When equity shares of an entity are held by a subsidiary or
subsidiaries of a parent in such a way that it allows the group
to control that entity, an indirect subsidiary, in so far as
owners of the parent are concerned, is said to exist.
 The parent’s interest in that subsidiary is indirect, via shares
held by its other subsidiaries in the group.

8
 Indirect Subsidiary..(cont)
Example:
Parent P Bhd
80% 60%

NCI 20% 42% 40% NCI

Subs A Bhd Subs B Bhd

6% 30% 30% 12%

40%
Subs NCI
C Bhd
Indirect Subsidiary

9
 Indirect Subsidiary..(cont)
Parent’s and NCI’s interests in Subs A, B and C can be
calculated as follows:
A Bhd B Bhd C Bhd
Parent interest:
Direct 80% 60%
Indirect:
via A Bhd 0.80 x 30% 24%
via B Bhd 0.60 x 30% 18%
42%
NCI
Direct 20% 40% 40%
Indirect
via A Bhd 0.20 x 30% 6%
via B Bhd 0.40 x 30% 12%
58%
100% 100% 100%

10
 Indirect Subsidiaries..(cont)
Note:
C Bhd is deemed to be subsidiary of P Bhd.
 P Bhd indirect interest in C Bhd is 42% but can exercise 60% of voting
power on C Bhd as a group via shares held by A Bhd and B Bhd.

For consolidation: effective 42% indirect interest will be used as far

as members of the parent are concerned.

11
 Connecting Affiliation
The parent company holds a controlling interest in a subsidiary, and both
the parent and that subsidiary have an interest in another company
Parent’s and NCI’s interest in the
P Bhd
subsidiaries can be determined as
80% 15% P’s indirect Interest follows: A Bhd B Bhd
Parent interest:
48% (80% x 60%) Direct 80% 15%
A Bhd60% B Bhd Indirect: 80% x 60% 48%
63%

20% 12% 25% NCI:

Direct 20% 25%
Indirect NCI Indirect: 20% x 60% 12%
NCI NCI

* B Bhd also a direct subsidiary of A Bhd 37%

100% 100%
12
 Connecting Affiliation..(cont)
A Bhd B Bhd
P Bhd Parent interest:
Direct 60% 30%
60% 30% P’s indirect Interest Indirect: 60% x 30% 18%
18% 48%
A Bhd B Bhd
30% NCI:
Direct 40% 40%
40% 12% 40% Indirect: 40% x 30% 12%
Indirect NCI
NCI NCI 52%
100% 100%

Though P’s effective direct and indirect interest in B Bhd is only 48%, B Bhd is
deemed a subsidiary of P Bhd because the group [P(30%)+A(30%)] as a whole can
control 60% of the voting power in B Bhd.
13
 Consolidation technique for
Indirect Subsidiaries
Where sub-groups exist in a group structure, more than one
set of group accounts must be prepared if the immediate
parents are not wholly-owned
Method:
1. stage-by-stage method
(multiple-stage /consolidation of consolidation)
2. one-stage method
(indirect interest method/ short-cut technique)

14
 Stage-by-stage method
sub-groups account at the lowest tier of the vertical structure
are prepared first
the consolidation is repeated by progressing stage-by-stage
upwards until it reaches the highest tier of the ultimate parent
group accounts
Additional adjustment: If NCI measured at propotionate of net
assets, at each subsequent level, Goodwill to indirect NCI is
excluded by debiting NCI account in the CSFP

15
 Example 1:
Father-Son-Grandson Structure
AA Bhd acquired a 60% interest in the equity capital of BB Bhd on
31 December 2018 when the net assets of the latter were
RM3,000,000. On the same day, BB Bhd acquired a 75% interest in
the equity capital of CC Bhd and the net assets of the latter on that
date were RM2,500,000.

The draft statement of financial position of the three companies on

31 December 2018 were as follows:

16
 Example 1
AA Bhd BB Bhd CC Bhd
RM’000 RM’000 RM’000
Share Capital of RM1 each 4,000 2,000 1,000
Reserves 2,000 1,000 1,500
6,000 3,000 2,500

Investment in BB Bhd 3,000 - -

Investment in CC Bhd - 2,700 -
• Sundry
At net assetsacquisition dates, the considerations
the respective 3,000 300 by the 2,500
paid parents are
based on the fair values of subsidiaries as a whole. 3,000
6,000 2,500
17
 Example 1
REQUIRED:
1. NCI measured at proportionate of net asset:
a) Calculate the goodwill arising on consolidation that should be
reflected in the AA Bhd’s group accounts
b) show the consolidation adjustments required and draft the group
accounts of AA Bhd (use stage by stage method).

2. NCI measured at fair value:

a) Calculate the goodwill arising on consolidation that should be
reflected in the AA Bhd’s group accounts
b) show the consolidation adjustments required and draft the group
accounts of AA Bhd (use stage by stage method).
18
 Solution
Structure
AABhd BB Bhd CC Bhd
Parent interest:
60% Direct 60%
Indirect: 60% x 75% 45%
40%
NCI BB Bhd45% (60% x 75%) NCI:
75% Direct 40% 25%
Indirect: 40% x 75% 30%
30%
55%
CC Bhd 100% 100%
NCI 25%

19
 Solution
1. NCI measured at proportionate of net asset
(a) Goodwill on consolidation:
 AA Bhd and BB Bhd (60%) RM’000
AABhd
COI 3,000
NCI (3000 x 40%) 1,200 60%
(-) FV of INA (2,000 +1,000) 3,000
40%
1,200 NCI BB Bhd

BB Bhd and CC Bhd(75%) 75%

COI 2,700
NCI CC Bhd
NCI (2500 x 25%) 625 25%
(-)FV of INA (1,000 +1,500) 2,500
825
20
 Solution
the goodwill that should be reflected in the AA Bhd’s group
accounts would consist of:
The whole goodwill arising on acquisition of BB Bhd RM1,200

AA Bhd’s share of goodwill in the sub-group of BB Bhd

and CC Bhd (60% x 825) 495
1,695

* The portion of the goodwill in the sub-group that belongs to

NCI in BB Bhd is RM330,000 (40% x RM825,000) should be
EXCLUDED as far as AA Bhd is concerned.

21
 Solution:
Stage 1: Consolidate BB Bhd and CC Bhd as follows: (the lowest tier )
 
(b) CJE:
Share Capital CC (75% x 1000) 750
Reserves CC (75% x 1500) 1,125
Goodwill on con 825
Investment in CC 2,700
 
Share Capital CC (25% x 1000) 250
Reserves CC (25% x 1500) 375
NCI (CSFP) 625

22
 Solution:
BB CC Consolidation Sub-group
adjustment (BB + CC)
RM’000 RM’000 RM’000 RM’000 RM’000
Share Capital 2,000 1,000 (a) 750 2,000
(b) 250
Reserves 1,000 1,500 (a)1,125 1,000
(b) 375
NCI - - (b) 625 625
3,000 2,500 3,625
Investment in CC 2,700 - (a)2,700 -
Goodwill - - (a) 825 825

Sundry net assets 300 2,500 2,800

3,000 2,500 3,625
23
 Solution:
Stage 2: Consolidate AA Bhd and sub-Group as follows:
 CJE:
Share Capital BB (60% x 2000) 1,200
Reserves BB (60% x 1000) 600
Goodwill on con 1,200
Investment in BB 3,000
 
Share Capital BB (40% x 2000) 800
Reserves BB (40% x 1000) 400
NCI (CSFP) 1,200
 
NCI (CSFP) 330
Goodwill on consolidation 330 (40% x 825)
(to exclude Goodwill to indirect NCI)
24
 Solution:
Sub- Consolidation Sub-
AA Bhd Group adjustment Ultimate
(slide 24) Group
RM’000 RM’000 RM’000 RM’000 RM’000
Share Capital 4,000 2,000 (a)1,200 4,000
(b) 800
Reserves 2,000 1,000 (a) 600 2,000
(b) 400
NCI - 625 (c) 330 (b)1,200 1,495
6,000 3,625 7,495
Investment in BB 3,000 - (a)3,000 -
Goodwill - 825 (a)1,200 (c) 330 1,695

Sundry net assets 3,000 2,800 5,800

6,000 3,625 7,495

25
 Solution:
2. NCI measured at fair value:
• At the respective acquisition dates, the considerations paid by the parents
are based on the fair values of subsidiaries as a whole. So, the fair values of
NCI:
COI (BB) = 60% FV of BB Bhd
FV of subsidiary(BB) as a whole = 3M/60% = 5M
NCI (BB) = 40% x 5M = 2 M

COI (CC) = 75% FV of CC Bhd

FV of subsidiary(CC) as a whole = 2.7M/75% = 3.6M
NCI (CC) = 25% x 3.6M = 0.9 M

26
 Solution:
2. NCI measured at fair value:
(a) Goodwill on consolidation
AA Bhd and BB Bhd (‘000)

Company Implied Value Parent(60%) NCI (40%)

Company value 5,000 3,000 2,000
FV of INA (2,000+1,000) 3,000 1,800 1,200
Goodwill 2,000 1,200 800

BB Bhd and CC Bhd (‘000)

Company Implied Value Parent(75%) NCI(25%)
Company value 3,600 2,700 900
FV of NIA (1,000+1,500) 2,500 1,875 625
Goodwill 1,100 825 275

27
 Solution:
(b) CJE:
Stage 1: Consolidate BB Bhd and CC Bhd as follows:
 
Share Capital CC (75% x 1000) 750
Reserves CC (75% x 2000) 1,125
Goodwill on con 825 Investment in CC
2,700
 
Share Capital CC (25% x 2000) 250
Reserves CC (25% x 1500) 375
Goodwill on con 275
NCI (SFP) 900

28
 Solution:
BB CC Consolidation Sub-group
adjustment (BB + CC)
RM’000 RM’000 RM’000 RM’000 RM’000
Share Capital 2,000 1,000 (a) 750 2,000
(b) 250
Reserves 1,000 1,500 (a)1,125 1,000
(b) 375
NCI - - (b) 900 900
3,000 2,500 3,900
Investment in CC 2,700 - (a)2,700 -
Goodwill - - (a) 825
(b) 275 1,100
Sundry net assets 300 2,500 2,800
3,000 2,500 3,900

29
 Solution:
CJE:
Stage 2: Consolidate AA Bhd and sub-Group as follows:
 
Share Capital BB (60% x 2000) 1,200
Reserves BB (60% x 1000) 600
Goodwill on con 1,200
Investment in BB 3,000
 
Share Capital BB (40% x 2000) 800
Reserves BB (40% x 1000) 400
Goodwill on con 800
NCI (CSFP) 2,000
  30
 Solution:
AA Bhd Sub- Consolidation Sub-
Group adjustment Ultimate
Group
RM’000 RM’000 RM’000 RM’000 RM’000
Share Capital 4,000 2,000 (a)1,200 4,000
(b) 800
Reserves 2,000 1,000 (a) 600 2,000
(b) 400
NCI - 900 (b)2,000 2,900
6,000 3,900 8,900
Investment in BB 3,000 - (a)3,000 -
Goodwill - 1,100 (a)1,200
(b) 800 3,100
Sundry net assets 3,000 2,800 5,800
6,000 3,900 8,900

31
 One-stage method
consolidation adjustments are made by reference to the ultimate
parent’s effective indirect interests in the indirect subsidiaries.
Additional adjustment: in matching the cost of investment with the
ultimate parent’s effective share of net assets in an indirect
subsidiary, the portion of the cost attributable to NCI in the
immediate parent is excluded and charged to NCI account
 this exclusion is necessary if Goodwill is to reflect only the ultimate
parent’s proportionate share

32
 Example 2*:
Father-Son-Grandson Structure
AA Bhd acquired a 60% interest in the equity capital of BB Bhd on
31 December 2018 when the net assets of the latter were
RM3,000,000. On the same day, BB Bhd acquired a 75% interest in
the equity capital of CC Bhd and the net assets of the latter on that
date were RM2,500,000.

The draft statement of financial position of the three companies on

31 December 2018 were as follows:

* This example same as Example 1

33
 Example 2*
AA Bhd BB Bhd CC Bhd
RM’000 RM’000 RM’000
Share Capital of RM1 each 4,000 2,000 1,000
Reserves 2,000 1,000 1,500
6,000 3,000 2,500

Investment in BB Bhd 3,000 - -

Investment in CC Bhd - 2,700 -
Sundry
• At net assets acquisition dates, 3,000
the respective 300 paid2,500
the considerations by the
parents are based on the fair values6,000
of subsidiaries
3,000as a whole.
2,500

* This example same as Example 1

34
 Example 2
REQUIRED:
1. NCI measured at proportionate of net asset:
a) Calculate the goodwill arising on consolidation that should be
reflected in the AA Bhd’s group accounts
b) show the consolidation adjustments required and draft the group
accounts of AA Bhd (use one stage method).

2. NCI measured at fair value:

a) Calculate the goodwill arising on consolidation that should be
reflected in the AA Bhd’s group accounts
b) show the consolidation adjustments required and draft the group
accounts of AA Bhd (use one stage method).
35
 Solution
Structure
AABhd BB Bhd CC Bhd
Parent interest:
60% Direct 60%
Indirect: 60% x 75% 45%
40%
NCI BB Bhd45% (60% x 75%) NCI:
75% Direct 40% 25%
Indirect: 40% x 75% 30%
30%
55%
CC Bhd 100% 100%
NCI 25%

36
 Solution
1. NCI measured at proportionate of net asset
(a) Goodwill on consolidation:
 AA Bhd and BB Bhd (60%) RM’000
AABhd
COI 3,000
NCI (3000 x 40%) 1,200 60%
(-) FV of INA (2,000 +1,000) 3,000
40%
1,200 NCI BB Bhd

BB Bhd and CC Bhd(75%) 75%

COI 2,700
NCI CC Bhd
NCI (2500 x 25%) 625 25%
(-)FV of INA (1,000 +1,500) 2,500
825
37
 Solution
b) CJE:
AA + BB:
Share Capital of BB (60% x 2000) 1,200
Reserves of BB (60% x 1000) 600
Goodwill on con 1,200
Investment in BB 3,000
 
Share Capital of BB (40% x 2000) 800
Reserves of BB (40% x 1000) 400
NCI (CSFP) 1,200
38
 Solution
AA + CC:
Share Capital of CC(45% x 1,000) 450
Reserves of CC (45% x 1,500) 675
NCI (CSFP) (40% x 2,700)a 1,080
Goodwill on con (60%x 825)b 495
Investment in CC 2,700
  a:(%NCI in BB x COI(CC))
b:(%AA in BB x Goodwill(CC))

Share Capital of CC (55% x 1,000) 550

Reserves of CC (55% x 1,500) 825
NCI (CSFP) 1,375
39
 Solution
AA Bhd BB CC Consolidation Sub-
Bhd Bhd adjustment Ultimate
Group
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Share Capital 4,000 2,000 1,000 (a)1,200 4,000
(b) 800
(c) 450
(d) 550
Reserves 2,000 1,000 1,500 (a) 600 2,000
(b) 400
(c) 675
(d) 825
NCI - - - (c)1,080 (b)1,200 1,495
(d)1,375
6,000 3,000 2,500 7,495
Investment in BB 3,000 - - (a)3,000 -
Investment in CC - 2,700 - (c)2,700 -
Goodwill - - - (a)1,200 1,695
(c) 495

Sundry net assets 3,000 300 2,500 5,800

6,000 3,000 2,500 7,495

40
 Solution:
2. NCI measured at fair value:
(a) Goodwill on consolidation
AA Bhd and BB Bhd (‘000)

Company Implied Value Parent(60%) NCI (40%)

Company value 5,000 3,000 2,000
FV of INA (2,000+1,000) 3,000 1,800 1,200
Goodwill 2,000 1,200 800

BB Bhd and CC Bhd (‘000)

Company Implied Value Parent(75%) NCI(25%)
Company value 3,600 2,700 900
FV of NIA (1,000+1,500) 2,500 1,875 625
Goodwill 1,100 825 275

41
 Solution
b) CJE:
AA + BB:
Share Capital of BB (60% x 2000) 1,200
Reserves of BB (60% x 1000) 600
Goodwill on con 1,200
Investment in BB 3,000
 
Share Capital of BB (40% x 2000) 800
Reserves of BB (40% x 1000) 400
Goodwill on con 800
NCI (CSFP) 2,000
42
 Solution
AA + CC:
Share Capital of CC (45% x 1000) 450
Reserves of CC (45% x 1500) 675
NCI (CSFP) (40% x 2,700) 1,080
Goodwill on con (45% x 1,100)* 495
Investment in CC 2,700
  *(effective int in CC x Goodwill) @ (60% x 825)
Share Capital of CC (55% x 1000) 550
Reserves of CC (55% x 1500) 825
Goodwill on con (55% x 1,100) 605
NCI (CSFP) 1,980
43
 Solution
AA Bhd BB CC Consolidation Group
Bhd Bhd adjustment
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Share Capital 4,000 2,000 1,000 (a)1,200 4,000
(b) 800
(c) 450
(d) 550
Reserves 2,000 1,000 1,500 (a) 600 2,000
(b) 400
(c) 675
(d) 825
NCI - - - (c)1,080 (b)2,000 2,900
(d)1,980
6,000 3,000 2,500 8,900
Investment in BB 3,000 - - (a)3,000 -
Investment in CC - 2,700 - (c)2,700 -
Goodwill - - - (a)1,200 3,100
(b) 800
(c) 495
(d) 605
Sundry net assets 3,000 300 2,500 5,800
6,000 3,000 2,500 8,900

44
 Effective acquisition date
in indirect subsidiaries
(i) When an ultimate parent company acquires a direct subsidiary
which itself owns a subsidiary on an earlier date, the effective
acquisition date of the indirect subsidiary as regards the
ultimate parent is the date in which it acquires the direct
subsidiary

(ii) BUT, if the indirect subsidiary was acquired on a date later

than the acquisition date of the direct subsidiary by the
ultimate parent, then the later date is the effective date of
acquisition of the indirect subsidiary as regards the ultimate
parent.
45
 Effective acquisition date
in indirect subsidiaries
 
Ultimate Parent – P Bhd.
 
 Acquisition date (i) 1 Jan X8 (ii) 1 Jan X5

.
Direct Subsidiary – M Bhd

Acquisition date (i) 1 Jan X5 (ii) 1 Jan X7

Indirect Subsidiary – N Bhd

 
Deemed Acqn date: (i) 1 Jan X8 Deemed Acqn date: (ii) 1 Jan X7

46
 Direct & Indirect Interest
with a Change in Stake
Example:
P Bhd

80% 15% (1/1/2019)*

60%
A Bhd B Bhd
(1/1/2015)

* Subsequent purchase of shares in B Bhd by P Bhd’s shall treated as

equity transaction (acquire additional share in existing subsidiary)

47
 Direct & Indirect Interest
with a Change in Stake
Example 3:
On 1 January 2018, X Bhd acquired a 75% interest in the equity capital of Y Bhd
for a consideration of RM52,500,000. On this date, the retained profits of Y Bhd
were RM18,000,000.
On the same day, Y Bhd acquired a 60% interest in the equity capital of Z Bhd
for a consideration of RM23,400,000. The retained profits of Z Bhd on that date
were RM11,000,000.
On 1 January 2019, X Bhd acquired a 20% interest in the equity capital of Z Bhd
for a consideration of RM8,080,000.

48
Example 3
The draft statement of financial position of the three
companies on 31 December 2019 were as follows:
X Bhd Y Bhd Z Bhd
RM’000 RM’000 RM’000
Share Capital of RM1 each 80,000 40,000 20,000
Retained profits 90,000 33,000 21,000
Liabilities 79,000 50,000 26,000
249,000 123,000 67,000

Investment in Y Bhd 52,500 - -

Investment in Z Bhd 8,080 23,400 - 49
Example 3
X Bhd Y Bhd Z Bhd
RM’000 RM’000 RM’000
Profit after taxation 14,000 8,400 5,600
Retained profits b/f
Retained profits c/f 76,000 24,600 15,400
90,000 33,000 21,000

• At the respective acquisition dates, the considerations paid by the

parents are based on the fair values of subsidiaries as a whole.
• NCI are measured at fair value.

Required:
Perpare the Consolidated Statement of Financial Position (CSFP) of X
Bhd as at 31 Dec 2019.
50
 Solution
X Bhd
Y Bhd. Z Bhd.
Parent interest:
75% (1/1/18) 20% (1/1/19)
COI = 52.5 m COI = 8.08 m Direct 75% 20%
RE = 18 m RE = 15.4 m Indirect (75% x 60%) 45%
65%
Y Bhd Z Bhd NCI:
60% Direct 25% 20%
(1/1/18)
COI = 23.4 m Indirect (25% x 60%) 15%
RE = 11 m 35%
100% 100%

51
 Solution:
Goodwill on consolidation:
X Bhd and YBhd
Implied
FV Parent 75% NCI (25%)
RM’000 RM’000 RM’000
Company fair value 70,000 52,500 17,500 52,500,000 x 25%
FV of INA (40,000,000+18,000,000) 58,000 43,500 14,500 75%
Goodwill 12,000 9,000 3,000

Y Bhd and Z Bhd

Implied
FV Parent 60% NCI(40%)
RM RM RM
Company fair value 39,000 23,400 15,600 23,400,000 x 40%
60%
FV of INA (20,000,000+11,000,000) 31,000 18,600 12,400
Goodwill 8,000 4,800 3,200
52
 Solution:
b) Change in Stake (Movement in equity) Z Bhd:

RM’000
NCI 1/1/2018 15,600
Share on post-acquisition profit *
(15,400,000-11,000,000) x 40% 1,760
Carrying amount of NCI 1/1/2019 (40%) 17,360
Carrying amount -Transfer to parent
(20/40 x 17,360) 8,680
Consideration transferred 8,080
Positive movement to equity 600
* Period from 1/1/2018 to 1/1/2019
53
 Solution
One-stage Method:
(a) Share Capital of Y (75% x 40000) 30,000
Retained profit of Y (75% x 18000) 13,500
Goodwill on con 9,000
Investment in Y 52,500
 
(b) Share Capital of Y (25% x 40000) 10,000
Retained profit of Y (25% x 24600) 6,150
Goodwill on con 3,000
NCI (CSFP) 19,150

(c) NCI (CSCI) (25% x 8400) 2,100

NCI (CSFP) 2,100
  54
 Solution
(d) Share Capital of Z [45% x 20,000] 9,000
Retained profit of Z [45% x 11,000] 4,950
NCI (CSFP) [25% x 23,400] 5,850 Goodwill = 8 M
Goodwill (P) = 4.8M
Goodwill on con [45% x 8,000] 3,600
Investment in Z 23,400
75% x 4.8
(e) Share Capital of Z [55% x 20,000] 11,000
Retained profit of Z [55% x 15,400] 8,470
Goodwill on con [55% x 8,000] 4,400
NCI (CSFP) 23,870
45%
55%  55
 Solution
Carrying amount -Transfer to parent 8,680
Consideration transferred 8,080
Positive movement to equity 600

(f) NCI (CSFP) 8,680

Retained profit b/f 600
Investment in Z bhd 8,080
(change in stake(20%), positive movement in equity-slide 53)

(g) NCI (CSCI) 1,960

NCI (CSFP) 1,960
  (35% x 5,600)

56
 X Bhd Y Bhd Z Bhd Consolidation adj. Group
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Profit after tax 14,000 8,400 5,600 28,000

NCI (c) 2,100 -4,060

(g) 1,960
Attributable to 23,940
owner
Retained profits b/f 76,000 24,600 15,400 (a)13,500 82,930
(b) 6,150
(d) 4,950
(e) 8,470

Change in stake (f) 600 600

Retained profits c/f 90,000 33,000 21,000 107,470

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 X Bhd Y Bhd Z Bhd Consolidation adj. Group
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Share Capital 80,000 40,000 20,000 (a)30,000 80,000
(b)10,000
(d) 9,000
(e)11,000
Retained profit 90,000 33,000 21,000 107,470
NCI - - - (d) 5,850 (b)19,150
(f) 8,680 (c)
2,100
(e)23,870 32,550
Liabilities 79,000 50,000 26,000 (g) 1,960 155,000
249,000 123,000 67,000 375,020
Investment in Y 52,500 - - -
Investment in Z 8,080 23,400 - (a)52,500 -
(d)23,400
Goodwill - - - (a) 9,000 (f) 8,080 20,000
(b) 3,000
(d) 3,600
(e) 4,400
Sundry net assets 188,420 99,600 67,000 355,020
249,000 123,000 67,000 375,020

58
 Direct & Indirect Interest
with a Step-Acquisition
Example:
X Bhd

60% 30% (1/1/2018)

Y Bhd Z Bhd
40%
(1/1/2019)*
* Subsequent purchase of shares in Z Bhd by Y Bhd’s shall treated as
step-acquisition.

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 Direct & Indirect Interest
with a Step-Acquisition
Example 4 :
On 1 January 2018, X Bhd acquired a 60% interest in the equity
capital of Y Bhd and a 30% interest in the equity capital of Z Bhd.
The retained profits of Y Bhd and Z Bhd on that date were
RM2,000,000 and RM4,000,000 respectively. The considerations
paid by X Bhd was based on the fair values of Y Bhd as a whole.
On 1 January 2019, Y Bhd acquired a 40% interest in the equity
capital of Z Bhd. The retained profits of Z Bhd on that date were
RM6,000,000. The fair value of the ordinary shares of Z Bhd was
determined at RM1.85 per share.

60
Example 4
The draft statement of financial position of the three
companies on 31 December 2019 were as follows:
X Bhd Y Bhd Z Bhd
RM’000 RM’000 RM’000
Share Capital of RM1 each 20,000 10,000 10,000
Retained profits 10,000 5,000 8,000
30,000 15,000 18,000

Investment in Y Bhd 7,800 - -

Investment in Z Bhd 4,700 7,400 -
Sundry net assets 17,500 7,600 18,000
30,000 15,000 18,000
61
Example 4
X Bhd Y Bhd Z Bhd
RM’000 RM’000 RM’000
Profit after taxation 2,000 1,500 2,000
Retained profits b/f
Retained profits c/f 8,000 3,500 6,000
10,000 5,000 8,000

• NCI are measured at fair value.

Required:
Perpare the Consolidated Statement of Financial Position of X
Bhd as at 31 Dec 2019.

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 Solution
X Bhd Y Bhd. Z Bhd.
60% (1/1/18)
Parent interest:
* 30% (1/1/18)
COI = 7.8 m COI = 4.7 m
Direct 60% 30%
RE = 2 m RE = 4 m Indirect (60% x 40%) 24%
54%
NCI:
Y Bhd Z Bhd
40% Direct 40% 30%
(1/1/19) Indirect (40% x 40%) 16%
COI = 7.4 m 46%
RE = 6 m
100% 100%
*treated as previously held equity interest

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 Solution:
Gain on remeasurement of previously held stake (30%):
FV of previously held stake(10,000 x 30% x 1.85) 5,550
(-) Carrying amount:
COI 4,700
Share of post-acquisition profit*
(6,000 – 4,000) x 30% 600
Carrying amount 5,300
Gain on re-measurement 250
* (1/1/18 – 1/1/19)
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 Solution

Y Bhd 100% Parent 60% NCI at FV 40%

Company fair value 13,000 7,800 5,200 7,800/0.6 x 0.4

FV of INA (10,000+2,000) 12,000 7,200 4,800

Goodwill 1,000 600 400
 

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 Solution
Z Bhd 100% Y’s interest Previously Held NCI at FV
(40%) (30%) (30%)
Company fair value 18,500 7,400 5,550 5,550*
FV of NIA
(10,000+6,000) 16,000 6,400 4,800 4,800
Goodwill 2,500 1,000 750 750
*(FV of NCI based on fair value of Z’s share, NCI = 1.85 x 10,000 x 30%)
Goodwill:
Parent = (1,000 x 60% ) + 750 = RM1,350 Since COI (40%) equal with proportionate FV of Z
Bhd, (i.e: 1.85 x 10,000 x 40% = 7,400), so Goodwill
NCI = RM2,500 - RM1,350 = RM1,150 for parent can be allocated using effective interest, ie:
54% x 2,500 = 1,350

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 Solution
(a) Share Capital of Y [60%x10,000] 6,000
Retained profit of Y [60%x2,000] 1,200
Goodwill on con 600
Investment in Y 7,800
 
(b) Share Capital of Y [40%x10,000] 4,000
Retained profit of Y [40%x 3,500] 1,400
Goodwill on con 400
NCI (CSFP) 5,800
 
(c) NCI (CSCI) [40% x 1,500] 600
NCI (CSFP) 600
67
Solution
(d) Investment in Z 850
Retained profit b/f 600
Gain on remeasurement 250
(Gain on remeasurement)

(e) Share Capital of Z [54% x 10,000] 5,400

Retained profit of Z [54% x 6,000] 3,240
a
NCI (CSFP) [40% x 7,400] 2,960
Goodwill on con [(1,000 x 60%) + 750] 1,350
Investment in Z [7,400 + 5,550b] 12,950
  a: %NCI(Y) x COI in Z (Y)
b: COI in Z (by X) remeasure at FV
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Solution
 
(f) Share Capital of Z [46% x10,000] 4,600
Retained profit of Z [46%x 6,000] 2,760
Goodwill on con [2,500-1,350] 1,150
NCI (CSFP) 8,510

(g) NCI (CSCI) [46% x 2,000] 920

NCI (CSFP) 920

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 X Bhd Y Bhd Z Bhd Consolidation adj. Group
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Share Capital 20,000 10,000 10,000 (a)6,000 20,000
(b)4,000
(e)5,400
(f)4,600
Reserves 10,000 5,000 8,000 (a)1,200 (d) 250 13,730
(b)2,000 (d) 600
(e)3,240
(f)3,680
NCI - - - (e)2,960 (b)5,800 12,870
(c) 600
(e)8,510
(g) 920

30,000 15,000 18,000 46,600

Investment in Y 7,800 - - (a)7,800 -
Investment in Z 4,700 7,400 - (d)600 (e)12,950 -
(d)250
Goodwill - - - (a)600 3,500
(b)400
(e)1,350
(f)1,150
Sundry net assets 17,500 7,600 18,000 43,100
30,000 15,000 18,000 46,600
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Consolidated Statement of Financial Position as
at 31 December 2019

RM’000
Share Capital 20,000
Reserves 13,730
NCI 12,870
46,600

Goodwill 3,500
Sundry net assets 43,100
46,600

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 Subsidiaries Making Losses
Consolidated accounts should recognize losses
Full loss of a subsidiary should be included

NCI in that subsidiary should be charged with its share of the loss
 Even if this result in the NCI having deficit balance

Accounts of loss-making subsidiary should be continue to

consolidated until declared technically insolvent – liquidation
 

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 Subsidiaries Making Losses
In separate parent accounts, the investment in the subsidiary,
recorded at cost should be written down to recognize impairment
losses
 The investment in the subsidiary should be carried at a recoverable
amount.
In Consolidated statement of profit or loss, recognizing losses of
subsidiary need an extra charge to write down or write off any
remaining goodwill on acquisition of that subsidiary.
When a loss-making subsidiary is placed under receivership or
under liquidation, the control of the subsidiary would have passed
to receriver or liquidator
 So the accounts of subsidiary would be excluded from consolidation
73
EXAMPLE

On 10 January 2012, Tuah Bhd acquired 35% interest in Kasturi, when Kasturi Bhd’s retained
profit was RM25,000. Tuah Bhd also acquired 80% interest in Jebat Bhd when Jebat Bhd’s
retained profit was RM100,000. On 1 January 2018, Jebat Bhd acquired 40% interest in Kasturi.
The following are financial statements provided by Tuah Group Bhd.

Tuah Group Bhd

Statement of Comprehensive Income
For The Year Ended 31 December 2018
Tuah Bhd Jebat Bhd Kasturi Bhd
RM RM RM
Sales 600,000 500,000 400,000
Cost of Goods Sold (320,000) (230,000) (250,000)
Gross Profit 280,000 270,000 150,000
Dividend Income 84,000 - -
Operating Expenses (20,000) (40,000) (90,000)
Profit before Tax 344,000 230,000 60,000
Tax Expense (120,000) (80,000) (30,000)
Profit after Tax 224,000 150,000 30,000
Dividend Paid (170,000) (105,000) -
Profit for the Year 54,000 45,000 30,000
Retained Profit Brought Forward 210,000 170,000 60,000
Retained Profit Carried Forward 264,000 215,000 90,000
74
 Tuah Group Bhd
Statement of Financial Position
As At 31 December 2018
Tuah Bhd Jebat Bhd Kasturi Bhd
RM RM RM
Assets:
Investment in Jebat Bhd 500,000 - -
Investment in Kasturi Bhd 190,000 - -
Investment in Kasturi Bhd - 240,000 -
Other Assets (net) 1,274,000 1,260,000 1,000,000
1,964,000 1,500,000 1,000,000
Equity and Liabilities:
Ordinary Shares (RM1 each) 1,000,000 500,000 500,000
Retained Profit 264,000 215,000 90,000
Liabilities 700,000 785,000 410,000
1,964,000 1,500,000 1,000,000

Additional information:
1. Jebat Bhd has been selling merchandise to Tuah Bhd since the date it was acquired. In
2018, Jebat Bhd sold RM100,000 worth of goods to Tuah Bhd. The intragroup mark-up on
the goods in the opening stock and closing stock of Tuah Bhd for 2018 were RM15,000
and RM12,000 respectively.
2. In 2015, Tuah Bhd sold a piece of land to Jebat Bhd for a profit of RM10,000. The land
was still held by Jebat Bhd as at 31 December 2018.
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1. The group’s policy is to measure non-controlling interest at acquisition-date fair value. The
consideration paid by parent company to acquire subsidiary company was based on its
proportionate share of the fair value of subsidiary company as a whole.
2. Tax effects on unrealised profit or loss on intercompany transactions should be ignored.
Assume income tax rate is 30%.

REQUIRED:

(a) Show the equity interest computation for group’s complex structure.
(b) Calculate the gain or loss on reclassification of previously held interest.
(c) Prepare the relevant consolidated journal entries by using one-stage consolidation method
of Tuah Bhd.
(d) Prepare the Consolidated Statement of Comprehensive Income for the year ended 31
December 2018 of Tuah Bhd.
(e) Prepare the Consolidated Statement of Financial Position as at 31 December 2018 of Tuah
Bhd.

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