Non-Controlling Interests | Test Bank - 9e

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Chapter 27 Testbank

1. An entity that controls another legal entity is called a parent entity.

True   False

2. Accounting Standard AASB 10 Consolidated Financial Statements defines a non-controlling interest as 'the equity in a subsidiary not attributable, directly or indirectly, to a parent'.

True   False

3. The three main concepts that can be applied in the consolidation process are the entity concept, the proprietary concept and the parent-entity concept.

True   False

4. A parent shall present non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.

True   False

5. AASB 101 includes a number of disclosure requirements relating to non-controlling interests.

True   False

6. AASB 10 and AASB 101 require non-controlling interests to be disclosed in the statement of financial position and the statement of profit or loss and other comprehensive income, but not in the statement of changes in equity.

True   False

7. AASB 3 provides preparers of financial statements with no choice in the measurement of non-controlling interests.

True   False

8. According to AASB 3 paragraph 19, for each business combination the acquirer shall measure any non-controlling interest in the acquiree either at fair value (including non-controlling interests' share of goodwill) or at the non-controlling interests' proportionate share of the acquiree's identifiable net assets (excluding non-controlling interests' share of goodwill).

True   False

9. A general principle for calculating non-controlling interests in profits or losses states that we do not need to make adjustments for unrealised gains or losses made by the parent entity when calculating the non-controlling interest in profits.

True   False

10. Non-controlling interests arise when:

A. the parent entity does not control a subsidiary in the group

B. the parent entity raises capital through preference shares that have the characteristics of debt to fund the subsidiary

C. the subsidiary has owners of equity who are not owners through their ownership interest in the controlling parent entity

D. the subsidiary has invested in other entities in which it does not have a controlling interest

11. Calculating goodwill for a subsidiary that has a non-controlling interest involves:

A. taking the parent entity's share of the fair value of the identifiable net assets of the subsidiary and deducting it from the fair value of the consideration paid.

B. dividing the fair value of the consideration paid for the subsidiary by the percentage ownership of the parent entity and deducting the fair value of the identifiable net assets of the subsidiary from that amount.

C. taking the book value of equity of the subsidiary and deducting the fair value of the consideration paid for the subsidiary.

D. dividing the fair value of the identifiable net assets of the subsidiary by the percentage ownership of the parent entity and deducting this amount from the fair value of the consideration paid.

12. Green Ltd purchased 90 per cent of the issued capital and in the process gained control over Maroon Ltd on 1 July 2025. The fair value of the net assets of Maroon Ltd at purchase was represented by:

Green Ltd paid cash consideration of $3 700 000 for Maroon Ltd.

During the period ended 30 June 2027, Maroon Ltd paid management fees of $100 000 to Green Ltd and Maroon had an operating profit of $405 000. Maroon Ltd declared a dividend of $98 000 during the period.

Green purchased inventory from Maroon during the period ended 30 June 2027 for $100 000. The inventory cost Maroon Ltd $85 000 and at the end of the period Green had 35 per cent of that inventory still on hand. Maroon's opening retained earnings for the period ended 30 June 2027 was $810 000.

Goodwill has been determined to have been impaired by $13 600. Companies in the group use perpetual inventory systems and accrue dividends when they are declared by subsidiaries. There were no other inter-company transactions. Ignore tax implications.

For the period ended 30 June 2027, what consolidation journal entries are required and what is the outside equity interest?

A.

Consolidation journal entries

Dr

Share capital

2 898 000

Dr

Retained earnings

666 000

Dr

Goodwill

136 000

Cr

Investment in Maroon Ltd

3 700 000

Dr

Impairment loss

13 600

Cr

Accumulated impairment loss

13 600

Dr

Management fee revenue

90 000

Cr

Management fee expense

90 000

Dr

Dividend revenue

88 200

Cr

Dividend paid

88 200

Dr

Sales revenue

90 000

Cr

Cost of goods sold

90 000

Dr

Cost of goods sold

4 725

Cr

Inventory

4 725

Non-controlling interest

B.

Consolidation journal entries

Dr

Share capital

2 898 000

Dr

Retained earnings

666 000

Dr

Goodwill

136 000

Cr

Investment in Maroon Ltd

3 700 000

Dr

Impairment loss

13 600

Cr

Accumulated impairment loss

13 600

Dr

Management fee revenue

100 000

Cr

Management fee expense

100 000

Dr

Dividend payable

88 200

Cr

Dividend declared

88 200

Dr

Sales revenue

100 000

Cr

Cost of goods sold

100 000

Dr

Cost of goods sold

5 250

Cr

Inventory

5 250

Non-controlling interest

C.

Consolidation journal entries

Dr

Share capital

2 898 000

Dr

Retained earnings

666 000

Cr

Investment in Maroon Ltd

3 564 000

Dr

Management fee expense

10 000

Cr

Management fee revenue

10 000

Dr

Dividend payable

88 200

Cr

Dividend declared

88 200

Dr

Dividend revenue

88 200

Cr

Dividend receivable

88 200

Dr

Sales revenue

90 000

Cr

Cost of goods sold

90 000

Non-controlling interest

D.

Consolidation journal entries

Dr

Share capital

3 220 000

Dr

Retained earnings

740 000

Cr

Non-controlling interest

260 000

Cr

Investment in Maroon Ltd

3 700 000

Dr

Management fee revenue

100 000

Cr

Management fee expense

100 000

Dr

Dividend payable

88 200

Cr

Dividend declared

88 200

Dr

Dividend revenue

88 200

Cr

Dividend receivable

88 200

Dr

Sales revenue

90 000

Cr

Cost of goods sold

90 000

Dr

Cost of goods sold

5 250

Cr

Inventory

5 250

Non-controlling interest

13. After eliminating the dividend payable to the parent, the balance of the dividend payable to the non-controlling interest will be:

A. eliminated as well.

B. included within the consolidated financial statements.

C. recognised as an expense in the consolidated financial statements.

D. transferred into a non-controlling interest reserve account.

14. Which concept reports non-controlling interest as a liability that applies in a consolidation process?

A. Entity concept

B. Proprietary concept

C. Parent-entity concept

D. None of the given answers are correct.

15. Which of the following dividends are included in the consolidated financial statements?

A. Dividends payable by the subsidiary to non-controlling interests only

B. Both dividends payable by the subsidiary to non-controlling interests and by the parent entity to external shareholders

C. Dividends paid by the parent entity to external shareholders only

D. No dividends are included; all are eliminated in consolidation entries

16. The non-controlling interest's share in the dividends paid or proposed by the subsidiary will ______________on consolidation.

A. not be eliminated

B. be eliminated

C. be revalued

D. None of the given answers are correct.

17. The dividends distributed to the non-controlling interests will also act to _________the non-controlling interests' share in the equity of the subsidiary.

A. increase

B. reduce

C. revalue

D. None of the given answers are correct.

18. If a subsidiary sold inventory to the parent at a gain, and the parent entity has in turn sold all of the inventory to external parties, the non-controlling interest's share of profit would _________________ . The related gain would be deemed to have been realised from the perspective of the group.

A. not need to be reduced

B. need to be reduced

C. need to be revalued

D. None of the given answers are correct.

19. As with inventory, if a subsidiary sells a non-current asset, such as an item of property, plant and equipment, to another entity within the group, to the extent that the asset stays within the group, the gain or loss on sale has not been recognised from the group's perspective and the non-controlling interests' share of profits will ___________________.

A. need to be adjusted

B. not need to be adjusted

C. need to be increased

D. None of the given answers are correct.

20. We do not need to make adjustments for unrealised gains or losses made by the parent entity when calculating the non-controlling interest in __________.

A. profit

B. loss

C. profit or loss

D. None of the given answers are correct.

21. A parent shall present non-controlling interests in the consolidated statement of financial position within equity, ______________from the equity of the owners of the parent. (AASB 10)

A. separately

B. collectively

C. separately or collectively

D. None of the given answers are correct.

22. AASB 101, paragraph 106(a), requires the statement of changes in equity to disclose total comprehensive income for the period __________ , showing separately the total amounts attributable to owners of the parent and to non-controlling interests.

A. on a line-by-line basis

B. not on a line-by-line basis

C. not on an aggregated basis

D. None of the given answers are correct.

23. Total comprehensive income = ________________

A. Sales + Other comprehensive income

B. Profit or Loss + Other comprehensive income

C. Profit or Loss + Retained earnings

D. Gross profit + Other comprehensive income

24. An entity shall attribute the profit or loss and each component of other comprehensive income to the owners of the parent and to the non-controlling interests. The entity shall also attribute total comprehensive income to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a _______balance. (AASB 10)

A. deficit

B. surplus

C. neutral

D. None of the given answers are correct.

25. AASB 101 Presentation of Financial Statements includes a number of disclosure requirements relating to non-controlling interests. These are consistent with the requirements of which standard?

A. AASB 10

B. AASB 112

C. AASB 102

D. None of the given answers are correct.

26. Which of the following is required to be shown as a separate line item on the face of the statement of financial position, according to paragraph 54(q) of AASB 101?

A. Non-controlling interest in equity

B. The amount of dividends recognised as distributions to owners

C. The nature and liquidity of assets

D. Total other comprehensive income

27. Describe the two options available for measuring non-controlling interest.

______________________________________________________________________________

28. Describe the three steps involved in preparing consolidated financial statements.

______________________________________________________________________________

29. What is a parent entity?

______________________________________________________________________________

30. Define non-controlling interest, as per AASB 10.

______________________________________________________________________________

31. Why do we need to know what a 'non-controlling interest' represents?

______________________________________________________________________________

32. Discuss briefly the intragroup payment of dividends.

______________________________________________________________________________

33. Discuss briefly the intragroup sale of inventory.

______________________________________________________________________________

34. Discuss briefly the intragroup transactions that create gains or losses in the parent entity.

______________________________________________________________________________

35. Discuss briefly some general principles for calculating non-controlling interests in profits or losses.

______________________________________________________________________________

36. Discuss the three main concepts that can be applied in the consolidation process.

______________________________________________________________________________

37. Discuss the disclosure requirements relating to non-controlling interests as per AASB 101 Presentation of Financial Statements.

______________________________________________________________________________

38. Why do we need to know how non-controlling interests are calculated?

______________________________________________________________________________

Chapter 27 Testbank