Department of Accountancy 03

Faculty of Commerce & Management Studies

University of Kelaniya
Business Reporting, Governance and Ethics
Academic Year 2021/2022 – Year II Semester II

The Consolidated Statement of Financial Position (Cont.)

Non-Controlling Interest (NCI)

In some situations, a parent may not own all of the shares in the subsidiary.
Ex: If P owns only 80% of the ordinary shares in S, there is a non-controlling interest of 20%.
Accordingly, the NCI is that part of the net results of operations and of net assets of a subsidiary attributable
to interests which are not owned, directly or indirectly through subsidiaries, by the parent.
So a proportion of the net assets of such subsidiaries in fact belong to investors from outside the group. In
the consolidated SOFP, it is necessary to distinguish this proportion from those assets attributable to the
group and financed by shareholders fund. The consolidated procedure for dealing with partly owned
subsidiaries is to calculate the proportion of ordinary shares, preference shares and reserves attributable to
Non-Controlling Interest (NCI) (minority interests).
NCI are required to recognize within equity in the consolidated financial statements. IFRS permits a
choice of accounting treatment for the measurement of NCI either;
• NCI should be measured at Fair Value (FV) or
• NCI should be measured at the proportionate share of the (Subsidiary) acquiree’s identifiable
net assets.

Test 05
Draft statements of financial position of ‘A’ Ltd and ‘B’ Ltd on 31st December 2021 are as follows.
A PLC B PLC
Property Plant & Equipment 85,000 18,000
Investment in B PLC 60,000 -
Current Assets 160,000 84,000
305,000 102,000
Equity and Liabilities
Equity - Ordinary shares Rs.1/= 65,000 20,000
Retained Earnings 105,000 35,000

Current Liabilities 135,000 47,000

305,000 102,000

‘A’ PLC acquired 80% of the equity shares of B PLC on 31st December 2021. Prepare the consolidated
statement of financial position as at 31st December 2021 assuming;

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 i. It is the A’s policy to value NCI at acquisition at its proportionate share of the value of the
subsidiary’s identifiable net assets.
ii. It is the A’s policy to value NCI at fair value. The fair value of the NCI in B PLC at the date of
acquisition was estimated to be Rs. 15,000.00

Test 06

The following statements of financial positions were taken from ‘A’ PLC and ‘B’ PLC as at 31st December
2021.
A PLC B PLC
Property Plant & Equipment 5,000 4,000
Investment in B PLC 5,000 -
Current Assets 4,000 3,000
14,000 7,000
Equity and Liabilities
Equity - Ordinary shares Rs.1/= 8,000 4,000
Retained Earnings 5,000 2,000

Non-Current Liabilities 750 850

Current Liabilities 250 200
14,000 7,000

‘A’ PLC acquired 75% of the equity shares of B PLC on 31st December 2021. Prepare the consolidated
statement of financial position as at 31st December 2021 assuming;

i. It is the A’s policy to value NCI at acquisition at its proportionate share of the value of the
subsidiary’s identifiable net assets.
ii. It is the A’s policy to value NCI at fair value. The fair value of the NCI in B PLC at the date of
acquisition was estimated to be Rs. 2,000.00

Pre Acquisition and Post Acquisition Profits

This adjustment is required when the acquisition date and the reporting date are different.

Pre-acquisition profits are those profits of the subsidiary company existed as of the acquisition date and
pre-acquisition profits are included in the net assets calculation of the subsidiary company as at the date of
acquisition.

Post-acquisition profits are those profits of the subsidiary company earned from the acquisition date to the
end of the reporting period.

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Test 07
Draft statements of financial position of ‘D’ Ltd and ‘J’ Ltd on 31st December 2021 are as follows.
D Ltd J Ltd

Property Plant & Equipment 85,000 18,000

Investment in J Ltd 60,000 -

Current Assets 160,000 84,000

305,000 102,000
Equity and Liabilities

Equity - Ordinary shares 100,000 30,000

Retained Earnings 70,000 25,000

Current Liabilities 135,000 47,000

305,000 102,000

D Ltd acquired 80% holdings in J Ltd as of 01st January 2021, when J Ltd’s retained earnings stood at Rs.
20,000/-. On this date, the fair value of the 20% non-controlling shareholdings in J Ltd was Rs.12,500/-.

Prepare the consolidated statement of financial position of D Ltd as at 31st December 2021.

Fair Values of Consideration and net assets of the subsidiary

To ensure that an accurate figure is calculated for goodwill,

ü The consideration paid for a subsidiary must be accounted for at fair value.
ü The subsidiary’s identifiable assets and liabilities acquired must be accounted for at their
fair [Link] fair value is defined as follows by SLFRS 13 Fair Value Measurement

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Fair Value: The price that would be received to sell an asset or paid to transfer a liability in
an orderlytransaction between market participants at the measurement date.

The subsidiary’s identifiable assets and liabilities are included in the consolidated accounts at their
fairvalues for the following reasons.

ü Consolidated accounts are prepared from the perspective of group, rather than from the
perspective ofthe individual companies. The book values of the subsidiary’s assets and
liabilities are largely irrelevant because the consolidate accounts must reflect their cost to the
group, not their original cost to the subsidiary. The cost to the group is their fair value at the
date of acquisition.

Test 08
Following statements of financial position were taken from the books of ‘A’ Ltd and ‘B’ Ltd
as at 31stDecember 2021.
A Ltd B Ltd
Non-Current Assets

Property Plant & Equipment 3,800 3,000

Less: Accumulated
Depreciation (500) (1,200)

Written down value 3,300 1,800

Investments 3,000 1,500

Current Assets 2,700 1,200

9,000 4,500
Equity and Liabilities

Equity - Ordinary shares 4,000 2,500

Retained Earnings 3,500 1,700

Non-Current Liabilities 1,000 -

Current Liabilities 500 300

9,000 4,500

Following information is available.

1. A Ltd acquired 60% of the ordinary share capital in B Ltd on 1st January 2021.
2. As of the acquisition date, fair values of B Ltd’s PPE were Rs.2,000 higher than its book value

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 and thatof investments was Rs 2,000. Retained earnings on the acquisition date were Rs.1,000.
Fair values of the non-controlling interest were Rs.3,500.
3. The remaining life time of B Ltd. PPE was 5 years.
You are required to prepare consolidate statement of financial position as at 31st December 2021.

Test 09
P Co. acquired 75% of the ordinary shares of S Co. on 01st January 2021. At that date the fair
values of S Co’s non-current assets (PPE) was Rs.23,000 greater than their net book values, and the
balance of retained earnings was Rs.21,000. The statements of financial positions of both
companies at 31st December 2021 are given below. S Co. has not incorporated any revaluation in
its books of accounts. NCI is valued at fairvalue which was deemed to be Rs. 18,000 at the
acquisition date.

P Co. S Co.
Non-Current Assets

Property Plant & Equipment 63,000 28,000

Investments in S Co. 51,000 -

Current Assets 82,000 43,000

196,000 71,000
Equity and Liabilities

Equity - Ordinary shares Rs. 1 each 80,000 20,000

Retained Earnings 96,000 41,000

Current Liabilities 20,000 10,000

196,000 71,000

If S Co. had revalued its non-current assets at 01st January 2021, an addition of Rs.3,000 would
have beenmade to the depreciation charged for 2021.

You are required to prepare P co.’s consolidate statement of financial position as at 31st December
2021.