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  1. avatar says

    Hi John,

    In example 1 you worked out the Non controlling interest as:

    NCI Share capital (20% x 10000) + NCI Retained profit post acquisition (20% x 8000) = 3600

    In example 2, why didn’t you add the NCI Share capital (40% x 20000)

    So NCI would be 42000 ie Fair value 30000 + Share Capital 8000 + Retained earnings 4000

    Thanks

  2. avatar says

    hi. Thank you for the classes. They help a lot!

    Please tell why do we include share of non controlling interest in the consolidated balance sheet.
    Balance sheet shows financial position of the group.
    like in example 1, non controlling interest is 20%. why is it included in Consolidated balance sheet. that should ideally go to the balance sheet of company having that 20% interest.

    • Profile photo of John Moffat says

      The consolidated Statement shows all the assets and liabilities of the group as though it was one big company. However, it is not all belonging to the shareholders of the parent (even though they control it) and so we have to show the amount that belongs to the non-controlling interest.
      With regard to the Statement of the subsidiary company – it would not be sensible (or legal) to change this at all. It is a separate legal company and it produces its own Statements in the normal way.

  3. Profile photo of dianalynn says

    Dear Sir, thanks for the reply.

    If the NCI fair value is not given, we will need to use the proportionate method.

    For example, P purchase 90% of S for $300,000.

    On Date of acquisition 01/01/2014 :
    S Ordinary Share Capital $ 100,000
    S Retain earnings were $ 60,000
    S Building was revalued at 10,000 higher than the book value

    On 31/12/2014 :
    S Ordinary Share Capital $ 100,000
    S Retain earnings $80,000
    _______________________________________________________

    During the calculation of NCI share of the S profit, can we calculate like this :

    10% x (S Share capital on date of acquisition $100,000 + Retain earning on acquisition 60,000 + Revaluation of PPE 10,000 ) = $17,000

    Add :
    10% x (S post retain earning 80,000 – acquisition retain 60,000 – PPE depreciation adjustment 1,000 ) = 1,900

    NCI share of S = $ 18,900

    is my above calculation correct? May i know, does the revaluation of non current asset affects the retain earning of the subsidiary?

    • Profile photo of John Moffat says

      If using proportionate method, then if 90% cost $300,000 then the NCI of 10% is valued at 10/90 x 300,000 = 33,333

      If the building was actually revalued in S’s books then the surplus goes to revaluation reserve (not to retained earnings).

      If it was simply a fair value adjustment for purposes of consolidation, then none of S’s reserves are affected.

      With regard to a depreciation adjustment, (in a consolidation), then this is not relevant for F3.

      • Profile photo of dianalynn says

        Dear Sir,
        thank you for your reply.

        what if the revaluation of building was not recorded in S’s books? do we need to do adjustment in the NCI calculation ?

      • Profile photo of John Moffat says

        I have actually answered this twice!

        As I wrote in my last reply, if the adjustment was purely for the purpose of consolidation (as almost certainly will be the case in Paper F3) then it does not affect the NCI calculation at all. All that happens in the consolidated statement is that the goodwill is lower and the value of the non-current assets is higher.

  4. Profile photo of dianalynn says

    Dear Sir,

    For example, if the fair value of PPE exceed the carrying value by 10,000 , we will need to make adjustment to the goodwill calculation as well as the non controlling interest calculation even though we are using the fair value method for non controlling interest?

    • Profile photo of John Moffat says

      Yes – the two mentions of ‘fair value’ are for different reasons and you will still make an adjustment to goodwill if there is a fair value adjustment needed for the non-current assets.

      (If you are still worried as to whether or not it is sensible then ask again and I will write more. However, the rule does remain that if relevant then the adjustment still needs to be made.)

      • Profile photo of dianalynn says

        Dear Sir, Thank you for your reply.

        For example, P purchase 90% of S when S for $300,000.

        On Date of acquisition 01/01/2014 :
        S Ordinary Share Capital $ 100,000
        S Retain earnings were $ 60,000
        S Building was revalued at 10,000 higher than the book value

        ***Fair value of Non controlling interest is $40,000

        On 31/12/2014 :
        S Ordinary Share Capital $ 100,000
        S Retain earnings $80,000
        __________________________________________

        Working 1: Goodwill
        Cost of investment $300,000
        NCI Fair value $ 40,000
        Less :
        S Share Capital at acquisition ($100,000)
        S Retain earning at acquisition ($ 60,000)
        Revaluation of building ($ 10,000)
        Goodwill is therefore $170,000

        The next step i would like to calculate the Non controlling interest share of S :

        Fair value of S $ 40,000
        Share of post-acquisition profit (80,000-60,000) x 10% = $2000
        ** Do i need to include the revaluation of PPE here ? ($10,000 x 10%)
        NCI is $ 42,000 ?

        ** My question is do we need to give the non controlling interest their share of PPE revaluation ?

        thanks for your help, hope u can help me with this

      • Profile photo of John Moffat says

        No – we don’t give the NCI a share of the fair value adjustment for the non-current assets.
        All the fair value adjustment does is reduce the goodwill and increase the non-current assets in the consolidated statements – it doesn’t change the total value of the group at all. The NCI remains at the fair value at the date of acquisition plus their share of post-acquisition profits.
        (Although you will never be asked to calculate the fair value of the NCI at the date of acquisition, the reason it is usually higher than their share of sh cap and reserves at the date of acquisition is because of the goodwill and the fact that the assets are worth more than the book values – it effectively already takes it into account).

  5. avatar says

    sir , i want ask a question that :
    P Co acquired 80% of the share capital of S Co ( total ordinary share of S Co is 10,000 $1 shares ) at market value of $12 and issues 1 of P Co share for every 4 shares in S co . Calculate the Fair Value of the consideration

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