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What is the difference between direct and indirect NCI? Under AASB127, the group is required to prepare the consolidation statement when parent entity acquires shares in the subsidiary. There are two parties who own shares in the subsidiary if it’s not a wholly-owned subsidiary consolidation. One is the parent entity while the other is non-controlling interest. Non-controlling interest (NCI) is defined as “the portion of the profit or loss and net assets of a subsidiary attributable to equity interest that are not owned, directly or indirectly through subsidiaries, by the parent” (Leo, et, al. 009, p. 895). The NCI can be classified as either direct (DNCI) or indirect (INCI). Differences between them arise when there are multiple subsidiaries in the group. DNCI refers to “an NCI that holds shares directly in a subsidiary” (Leo, et,al. 2009, p. 895). INCI refers to “an NCI that has an interest in a subsidiary as a result of having an interest in the parent of that subsidiary” which means the ownership in the subsidiary is indirectly via the parent of the subsidiary (Leo, et, al. 2009, p. 895).

A subsidiary in which the NCI group owns direct ownership becomes the parent entity of another subsidiary; the same party will have an indirect NCI in that subsidiary. Importantly, indirect NCI exists only where, there is a DNCI in the immediate parent of that entity (Leo, et, al. 2009, p. 879). More specifically, when the subsidiary partially owned by the parent becomes parent of any other subsidiary; the non-controlling interest that is outside of the group is indirectly entitled to the proportion of shares in that subsidiary because non-controlling interest is treated as the equity participant under AASB 127.

Word count: 252 Question 2: Explain the difference in the calculation of the direct and indirect NCI. The calculation of non-controlling interest is based on the sequence of business acquisition because it impacts on the way we calculate the consideration transferred and the pre-acquisition equity at the acquisition date. DNCI receives a proportionate share of all equity recorded by the subsidiary while INCI receives a proportionate share of subsidiary’s post-acquisition equity only (Leo, et, al. 2009, p. 878).

For example, given B Ltd the subsidiary of its immediate parent A Ltd, the proportionate share of B Ltd is eliminated in the pre-acquisition entry for A Ltd and the DNCI in B Ltd is given the rest of direct share. All the pre-acquisition equity of B Ltd is effectively allocated and none left for the INCI. In relation to Dividend, we need to calculate the “current year profit which is after any elimination of unrealised profits from intergroup transactions, and opening balance of retained earnings adjusted by a share of dividends paid and declared, and transfers to and from reserve in order to work out the DNCI ‘s share” (Leo, et, al. 009, p. 884). On the other hand, INCI is allocated “a share of the current periods post-acquisition profits, opening balance of post-acquisition retained earnings, and transfer to and from post-acquisition reserves” (Leo, et, al. 2009, p. 884). For intra-group transaction where dividends are paid or payable in the group, NCI share of equity should be adjusted to eliminate double accounting. Word count: 216 Question3: Why does the indirect NCI receive a share of only post-acquisition equity? The main reason for the indirect NCI (INCI) limited to a share of post-acquisition equity only is to avoid double counting.

An INCI arises only when a partly owned subsidiary holds shares in another subsidiary. As long as there is an INCI in an entity, there must be a DNCI in the immediate parent of that entity and they are the same party of shareholders. The DNCI is entitled to a share of the net assets of the parent and one of the assets of the parent is the investment share in the subsidiary, which reflects the pre-acquisition equity and assets of the subsidiary (Leo, et, al. 2009, p. 879). Therefore, the DNCI share of equity reflects both the ownership interests in parent and the pre-acquisition equity of the subsidiary.

To avoid double counting issue arising from continuing giving INCI a share of equity relating to the pre-acquisition assets of the subsidiary, the INCI is only given a share of the post-acquisition equity of the subsidiary. No double counting issue need to be considered again for post-acquisition equity since the investment shares in the subsidiary is recorded at cost, meaning any subsequent changes to the equity of its subsidiary after acquisition date will not be reflected in the shares in the parent. INCI is entitled to the post-acquisition equity once. Word count: 215 Question 18. 6 A.

Samoa Ltd Singapore Ltd (75%) 1 Acquisition Analysais: NFV of identifiable net assets of Singapore Ltd: = $5,000 + $1,000 + $20,000 =$26,000 NFV acquired (75%): = $26,000*$26,000 Consideration transferred: =$18,750 Bargain Purchase =$750 1). Pre-acquisition elimination entry :(1/7/05)(75%) Retained earning $3,750 General Reserve $750 Share capital $15,000 Excess $750 Investment in Singapore $18,750 (Retained earning: 75%*$5,000;General Reserve: 75% * $1,000; Share capital: 75% *20,000)

Pre-acquisition elimination entry (30/6/10) Retained earning $3,000 General Reserve $750 Share capital $15,000 Investment in Singapore $18,750 (Retained earning: $3,750-$750) 2). NCI share of Singapore (1/7/05) (25%) Retained earning $1,250 General Reserve $250 Share capital $5,000 NCI $6,500 Measurement of NCI Retained earning| $5,000*25%| $1,250| General Reserve| $1,000*25%| $250| Share Capital| $20,000*25%| $5,000| NCI| | $6,500| 3). NCI share of changes in equity (1/7/05—30/6/09) DNCI (25%) INCI (15%)

Retained earnings (1/7/09) $1,250 NCI $1,250 (25%*($10,000-$5,000) Retained earnings (1/7/09) $900 NCI $900 (15%*(10,000-$3,000/0. 75)=$900) 4) NCI share of equity in Singapore (1/7/09—30/6/10) NCI share of profit $3,120 NCI $3,120 [(25%+15%)*$7,800] NCI $1,000 Dividend paid $1,000 [$4,000*25%] NCI $500 Dividend Declared $5,00 Measurement of NCI Retained Earning| $1,250+1,250+3,120-$1,000-$500| $5,020| General Reserve| $1,000*25%| $250|

Share Capital| $20,000*25%| $5,000| NCI| | $10,270| B, Russia Ltd acquire Samoa Ltd (80%) NCI (20%) 1, Acquisition Analysis: NFV of identifiable net assets =$10,000 + 2,000 +60,000 =$72,000 NFV acquired by Russia =80%* $72,000=$57,600 Consideration transferred =$67,200-80%*2,000(dividend payable at the acquisition date) =$65,600 Goodwill =$8,000 5). Pre-acquisition elimination entry (1/7/05) Retained Earnings $8,000 General Reserve $1,600 Share Capital $48,000

Goodwill $8,000 Investment in Samoa $65,600 Dividend Payable $1,600 Dividend Receivable $1,600 Pre-acquisition elimination entry (30/6/09) Retained earnings (1/7/09) $8,000 General Reserve $1,600 Share capital $48,000 Goodwill $8,000 Investment in Samoa $65,600 6). NCI share of equity in Samoa (1/7/05) Retained earnings (1/7/09) $2,000 General Reserve $400

Share capital $12,000 NCI $14,400 Measurement of NCI Retained earnings| $10,000*20%| $2,000| General Reserve| $2,000*20%| $400| Share capital| $60,000*20%| $12,000| NCI| | $14,400| 7) NCI share of equity in Samoa (1/7/05—30/6/09) Retained earnings: (1/7/09) $2,000 NCI $2,000 [20%*($20,000-$10,000)] 8). NCI share of equity of Samoa (1/7/09-30/6/10) NCI share of profit $1,980

NCI $1,980 [$9,900*20%] NCI $400 Dividend paid $400 [$2,000*20%] NCI $400 Dividend declared $400 [2000*20] General reserve $380 NCI $380 [(3,900-2,000)*20%]

NCI $900 NCI share of profit $900 [25%*$4,500] Measurement NCI Retained earnings| $2,000+2,000+1,980-400-400-900| $3,480| General reserve| $400+380| $780| Share capital| $60,000*20%| $12,000| NCI| | $16,260| i) Intra-group transaction 9) Dividend-Singapore Dividend revenue $3,000 Interim dividend paid $3,000 [$4,000*75%] 10) Dividend paid-Samoa

Dividend revenue $1,600 Interim dividend paid $1,600 [60%*$2,000] 11) Dividend declared –Singapore Dividend revenue $1,500 Dividend receivable $1,500 Dividend payable $1,500 Dividends declared $1,500 [$2,000*75%] 12) Dividend declared–Samoa Dividend revenue $1,600 Dividend receivable $1,600

Dividend payable $1,600 Dividends declared $1,600 [$2,000*80%] 13) Intra-group transaction: sale Sale from Samoa to Russia Sales $20,000 Cost of sale $19,800 Inventory $200 Deferred tax asset $60 Income tax expense $60 NCI $28 NCI share of profit $28 [(200-60)*20%] $19000 + 16,000=35,000 (16,000=$20,000/(1+25%)-$16,000*(1-5%)=$15,200 = $19,800

For group view: Inventory on had=5%*$16,000=$800 14) Sale from Singapore to Russia Sale $15,000 Cost of sale $14,640 Inventory $360 Deferred tax asset $108 Income tax expense $108 NCI $101 NCI share of profit $101 [(15%+25%)*(360-108)] 12,000+(15,000-1,800)=$25,200-$12,000*(1-12%)=10,560 : = 14,640 (for group view, the cost of sale should be $$10,560) Inventory on hand: $1440 Cost of inventory; 15,000/ (1+0. 25) =$12,000

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