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Hey Mike,
I was stuck up in a question of Dec’10 P2 where there is a rights issue by the subsidiary, can you explain me this adjustment and its treatment for NCI related cashflows ? and also how will it be reflected in CSoFP and CSoCI ?
Thanks.I think it all depends on whether the parent took up the rights and thus maintained their relative power. He has asked a question in the past where the parent didn’t take up their rights and thus lost control – that was a deemed disposal.
If the parent DOES take up their entitlement, there is no affect on the nci – they DID have 35% ( say ) and they still have 35%.
For cash flow, the impact will be the value of each share issued to the nci grossed up for any share premium. The shares taken up by the parent will not represent any money paid out of the group
For nci, again assuming the parent takes up their shares, nci percentage will not change so share of this year’s subsidiary profits will be the same percentage all through the year. If the parent does NOT take up the rights, then it’s probably no longer a subsidiary and will need to calculate a profit / loss on deemed disposal and then treat the former subsidiary as an associate for the remainder of the year
Does that answer it?
So, the rights issue by the subsidiary to the NCI will account for as a cash inflow in financing activities ? and in this question we are only given the cash raised in total of the rights issue no details of the share capital is given, just the holding is given.
Sometimes m unable to understand what an NCI is for the parent company and in respect to group accounts, is it like any other reserve in the equity section as like an increase in the NCI because of rights issue constitutes as a cash inflow and dividend paid by sub as an outflow ?That sounds about right to me. The nci is just another part of financing – they are like the parent company in that they own shares in, and therefore finance the activities of, the subsidiary.
In a cash flow, we are looking to see amounts flowing into or out of the group. Payments to and from the nci are examples of such payments
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