Consolidation at

acquisition
Consolidation of a partially owned
subsidiary
Chapter 3 Group
Statements
Prescribed textbook reading:
Par 3.16 – 3.23
Example 3.4 – 3.7

Part 2
 Partially owned subsidiaries
 Parent does not own 100% of the subsidiary, thus there is non-controlling interest
 NCI – equity that is not directly or indirectly attributable to the parent.
 The amount of the non-controlling interest at the date of the original combination; and
 The non-controlling interests' share of changes in equity since the date of the business
combination
 Presented in the consolidated SFP within equity, separately from the equity of the
owners of the parent.
 Profit or loss and other comprehensive income is also attributed to NCI.
Partly-owned subsidiaries
 Parent does not own 100% of the subsidiary, thus there is non-controlling interest.
 Non-controlling interest in net assets consist of:
 The amount of the non-controlling interest at the date of
the original combination; and
 The non-controlling interests' share of changes in equity
since the date of the business combination
Calculation of goodwill in a partially owned
subsidiary

Consideration
+
Non controlling interest
-
Net assets
=
Goodwill

 When using the proportionate share of net identifiable assets, no goodwill

or gain from bargain purchase for NCI.
 When using FV, recognize goodwill or gain for NCI.
Measurement of NCI P S
P buys 80% the shares in S for R150 000. Assets 500 200
The 000 000
fair value at acquisition date of the NCI
amounted to R35 000.
Equity 300 150
000 000

Liabilities 200 50 000

000
Proportional method

Net assets of S is = R150 000

150 000 x 20% = R30 000

Thus NCI = R30 000

Proportional

Consideration 150 000

NCI at proportionate cost 30 000
180 000
Net identifiable assets (200-50) (150 000)
Goodwill 30 000
Pro forma
Dr Share capital (S)(SCE) 150 000
Dr Goodwill (S)(SFP) 30 000
Cr Investment in S Ltd (P)(SFP) 150 000
Cr Non-controlling interests (SFP) 30 000

Elimination of common items and recognition of goodwill at acquisition date.

Fair value
 Suppose the FV of the NCI is given as R35 000, calculate the
goodwill.
 Fair value
Consideration 150 000
NCI at FV 35 000
185 000
Net identifiable assets (150 000)
Goodwill 35 000
Pro forma
Dr Share capital (S)(SCE) 150 000
Dr Goodwill (S)(SFP) 35 000
Cr Investment in S Ltd (P)(SFP) 150 000
Cr Non-controlling interests(SFP) 35 000

Elimination of common items and recognition of goodwill at acquisition date.

 Example
The following information refers to P Ltd and its subsidiary on 1 January 2018, the acquisition
date. P Ltd elected to measure the NCI at FV. At that date, the NCI were worth R3 000 more
than their proportionate share of the identifiable assets and liabilities of the acquiree.
(Determine the NCI)
P Ltd S Ltd
ASSETS
PPE 32 000,00 40 000,00

Investment in S Ltd : 40 000 Shares @ cost 48 000,00 -

Trade receivables 70 000,00 50 000,00
Total assets 150 000,00 90 000,00
Equity and liabilities
Share capital(200 000/50 000 shares) 80 000,00 50 000,00
Revaluation surplus 18 000,00 7 000,00
Retained earnings 12 000,00 8 000,00
Long term borrowings 10 000,00 5 000,00
Trade payables 30 000,00 20 000,00
Total equtity and liabilities 150 000,00 90 000,00
 Example
1. Determine the goodwill or gain from bargain purchase using the analysis of
equity in S Ltd.
2. Show the proforma journal entries

Analysis of equity S Ltd

P Ltd 80%
Total At Since NCI 20%
At acquisition
Share capital 50 000,00 40 000,00 10 000,00
Revaluation surplus 7 000,00 5 600,00 1 400,00
Retained earnings 8 000,00 6 400,00 1 600,00
65 000,00 52 000,00 13 000,00
4 000,00 -
Gain from bargain - Parent (4 000,00 )
Equity represented by g/will - 3 000,00
NCI 3 000,00
Consideration and NCI @ FV 64 000,00 48 000,00 16 000,00

A net gain of R1 000

(48000-52000) FV adjustment
 Pro forma journal

Dr Share capital (S)(SCE) 50 000

Dr Revaluation surplus (S) (SCE) 7 000
Dr Retained earnings (S) (SCE) 8 000
Cr Investment in S Ltd (P)(SFP) 48 000
Cr Gain from bargain purchase (4000- 3000 (NCI) 1 000
(S) (P/L)
Cr Non-controlling interests(SFP) 16 000

Elimination of common items and recognition of gain from bargain purchase and NCI interests at
acquisition.
QUESTIONS?
Further examples

 Question 3.2
 Question 3.3