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Entity Approach
Under consolidated comprehensive income
Wholly owned subsidiary – it is computed similarly as that of the
parent company approach
Partially owned subsidiary – the portion of its income accruing to
NCI is included to the consolidated comprehensive income
It equals total earnings of all companies consolidated, less any income
recorded by the parent from the consolidating companies
- Consolidated comprehensive income under parent company approach is the same as the
income allocated to parent company stockholders under entity approach.
- The difference between parent company and entity approaches lie solely in the manner of
consolidating parent operations in consolidated financial statements.
ACCOUNTING FOR INVESTIMENT IN A SUBSIDIARY
- IAS 27 provides that in the separate financial statements of an entity who have
investment in subsidiaries, joint ventures and associates it may elect to account for its
investments either:
Cost Method
It is used when the acquirer owns directly or indirectly more than half of
the voting power of the acquiree (exercise control)
Investment in subsidiary account is retained at its original cost of
acquisition balance.
Income on the investment is limited to dividends received from the
subsidiary
Equity Method
Used when an investor/acquirer owns 20% (less than 50%) of voting
power of the investee/acquiree. It exercise significant influence over the
operations of the investee.
Applied to investment in associates and joint ventures.
NCI in CI of Subsidiary xx
Non-Controlling Interest xx
To recognize NCI in subsidiary’s net income for the year.
Inventory xx
Property and Equipment xx
Goodwill xx
Investment in Acquired Company xx
Non-Controlling Interest xx
To allocate excess between investment cost and the book value of identifiable
assets acquired with remainder to the goodwill.
NCI in CI of subsidiary xx
Non-Controlling Interest xx
To recognize NCI in subsidiary’s adjusted net income for the year.
NCI in CI of subsidiary xx
Non-Controlling Interest xx
To recognize NCI in Acquired Company’s adjusted Controlling Interest for
the current year.