HI5020

Corporate Accounting
Session 9b

Accounting for Non-controlling

Interests
 Session Learning Objectives
Know how to calculate goodwill or bargain gain on
purchase in the presence of non-controlling interests
Know how to prepare consolidation elimination and
adjustments to recognise the pre-acquisition capital
and reserves of Subsidairy Ltd, assuming that non-
controlling interest was measured at the
proportionate share of the acquiree’s identifiable net
assets.
Know how to prepare consolidation elimination and
adjustments to recognise the pre-acquisition capital
and reserves of Subsidairy Ltd, assuming that non-
controlling interest was measured at the fair value.
 Example: Accounting at Acquisition Date
On July 1 2014, Hans Ltd acquired 70% of share capital of
Solo Ltd for $1,200,000. Equity of Solo Ltd was:
Share capital $1,050,000
Revaluation surplus $ 300,000
Retained earnings $ 150,000
All assets of Solo Ltd were recorded at FV on acquisition
except for a piece of equipment that had a higher FV
($50,000) than its carrying amount. Cost of equipment was
$300,000, accumulated depreciation of $196,000. Tax rate is
30%.
Req. Prepare the consolidation elimination and adjustments to
recognise the pre-acquisition capital and reserves of Solo Ltd,
assuming that the non-controlling interest was measured at
the proportionate share of the acquiree’s identifiable net
assets.
 Elimination of the Investment – Step 1
Solo Ltd Hans Ltd 30% NCI
Elimination of investment in Solo Ltd. (S) $,000 (P) $,000 $,000
Fair value of consideration transferred 1,200
Less: FV of identifiable assets acquired &
liabilities assumed
Share capital on acquisition date 1,050 735 315
Revalue surplus-acquisition date 300 210 90
Retained earnings-acquisition date 150 105 45
Revaluation surplus
(Fair value adjustment) [$50,000 x (1-tax rate)] 35 24.50 10.50
Total 1,535 1,074.50
Goodwill on acquisition 125.50
Non-controlling interest 460.50
 Consolidation Journal Entries
The various journal entries are as follows:

Accumulated depreciation 196,000

Equipment 196,000
To close off accumulated depreciation in accordance with the net
method of asset revaluation

Equipment 50,000
Revaluation surplus 35,000
Deferred tax liability 15,000
To record the revaluation surplus & deferred tax liability
 Consolidation Journal Entries
Share capital (70%) 735,000
Revaluation surplus * 234,500
Retained earnings 105,000
Goodwill 125,500
Investment – Solo Ltd 1,200,000
To recognise the Goodwill on acquisition & eliminate Hans Ltd interest
in pre-acquisition capital & reserves
Share capital 315,000
Revaluation surplus 100,500
Retained earnings 45,000
NCI 460,500
To record the recognition of the Non-controlling Interest (NCI) in
contributed equity & reserves at date of acquisition
*(210000+24500)
 Consolidation Journal Entries
From here the consolidated financial statements
can be produced. They would include Hans Ltd’s
(parent) share capital & reserves as well as the
non-controlling interest’s share of Solo Ltd’s pre-
acquisition share capital & reserves (not eliminated
as part of the consolidation process)
 Non-controlling Interests at FV (Method 2)
Lets now look at how the previous information would be
recorded if the alternative option, being the valuation of
the Non-controlling interest in the acquiree (being Solo
Ltd) at Fair Value.

In this method, we will still commence with a worksheet

but done to recognise the goodwill on acquisition
between the parent (Hans Ltd) & the subsidiary (Solo Ltd)
 Example: Accounting at Acquisition Date
On July 1 2014, Hans Ltd acquired 70% of share capital of
Solo Ltd for $1,200,000. Equity of Solo Ltd was:
Share capital $1,050,000
Revaluation surplus $ 300,000
Retained earnings $ 150,000
All assets of Solo Ltd were recorded at FV on acquisition
except for a piece of equipment that had a higher FV
($50,000) than its carrying amount. Cost of equipment was
$300,000, accumulated depreciation of $196,000. Tax rate is
30%.
Req. Prepare the consolidation elimination and adjustments to
recognise the pre-acquisition capital and reserves of Solo Ltd,
assuming that the non-controlling interest was measured at
the fair value.
 Non-controlling Interests at FV (Method 2) (cont.)

Solo Ltd Hans Ltd 30% NCI

Elimination of investment is subsidiary (Solo Ltd) $ 70% interest $
FV of consideration transferred 1,200,000 1,200,000
*Plus NCI measured at FV 514,286 514,286
Total 1,714,286
Less: FV of assets acquired, liabilities assumed
Share capital on acquisition date 1,050,000 735,000 315,000
Revaluation surplus on acquisition 300,000 210,000 90,000
Retained earnings on acquisition 150,000 105,000 45,000
Revaluation surplus (FV adjustment) 35,000 24,500 10,500
[$50,000 x (1-0.3)]
Total 1,535,000 1,074,500 460,500
Goodwill on acquisition date 179,286 125,500 53,786

* Includes FV adjustment
 Journal Entries (method 2)
Share capital 315,000
Revaluation surplus 100,500
Retained earnings 45,000
Goodwill 53,786
Non-controlling Interest 514,286
To recognise the non-controlling interest in Solo Ltd at date of acquisition

Share capital (70%) 735,000

Revaluation surplus 234,500
Retained earnings 105,000
Goodwill 125,500
Investment – Solo Ltd 1,200,000
To recognise the Goodwill on acquisition & eliminate Hans Ltd interest in
pre-acquisition capital & reserves.
 In-class Worked Example
On July 1 2014, Western Ltd acquired 70% of share capital of
Star Ltd for $4,200,000. Equity of Star Ltd was:
Share Capital $3,675,000
Revaluation Surplus $1,050,000
Retained Earnings $ 525,000
All assets of Star Ltd were recorded at FV on acquisition except
for a piece of equipment that had a higher FV ($175,000) than its
carrying amount. Cost of equipment was $1,050,000,
accumulated depreciation of $686,000. Tax rate is 30%.
Req. Prepare the consolidation elimination and adjustments to
recognise the pre-acquisition capital and reserves of Solo Ltd,
assuming that the non-controlling interest was measured at the
proportionate share of the acquiree’s identifiable net assets.
 In-class Worked Example
Req. Prepare the consolidation elimination and adjustments to
recognise the pre-acquisition capital and reserves of Solo Ltd,
assuming that the non-controlling interest was measured at the
proportionate share of the acquiree’s identifiable net assets.
 In-class Worked Example (cont.)
Star Ltd Western 30% NCI
(S) $,000 Ltd $,000
Elimination of investment in Star Ltd (P) $,000
FV of consideration transferred 4,200
Less: FV of identifiable assets acquired &
liabilities assumed
Share capital on acquisition date 3,675 2,572.50 1,102.50
Revalue surplus-acquisition date 1,050 735 315
Retained earnings-acquisition date 525 367.50 157.50
Revaluation Surplus-(Fair value adjustment) 122.50 85.75 36.75
[$175,000 x (1-tax rate)]
Total 5,372.50 3,760.75
Goodwill on acquisition 439.25
Non-controlling interest 1,611.75
THE END