Exam 22: Consolidation: Other Issues

Jacaranda Limited acquired a 75% ownership interest in Frangipani Limited on 30 June 20X5.On the same day,Frangipani Limited acquired a 60% ownership interest in Gardener Limited.The following interentity transactions have taken place between the entities in the group during the years ended 30 June 20X6 and 30 June 20X7: On 1 July 20X5 Gardener sold an item of plant to Jacaranda for a profit of $25 000.The remaining useful life of the plant at the date of transfer was 2 years. On 1 September 20X5,Gardener paid a dividend of $100 000 from profits earned prior to 30 June 20X5. Jacaranda lent $500 000 to Gardener on 1 January 20X6.Interest charged on the loan for the year ended 30 June 20X6 was $20 000 and for the year ended 30 June 20X7 was $40 000. On 31 May 20X6 Frangipani sold inventory to Gardener for $15 000.Profit earned on the sale was $1500.Gardener sold the inventory to external parties on 1 August 20X6. Details of profits earned by entities within the group for the years ended 30 June 20X6 and 30 June 20X7 are: The tax rate is 30%. The effect of the dividend paid by Gardener to Frangipani on the NCI of Gardener for the year ended 30 June 20X6 is:

An indirect NCI can exist in an entity only where there is a direct NCI in the immediate parent of that entity.

The indirect NCI receives a proportionate share of both pre and post-acquisition equity of the subsidiary.

The indirect NCI is entitled to a share of any movements in the business combination valuation reserves that occur subsequent to the acquisition of a subsidiary.

In a group that has a multiple subsidiary structure,the indirect non-controlling interest is entitled to:

Jacaranda Limited acquired a 75% ownership interest in Frangipani Limited on 30 June 20X5.On the same day,Frangipani Limited acquired a 60% ownership interest in Gardener Limited.The following interentity transactions have taken place between the entities in the group during the years ended 30 June 20X6 and 30 June 20X7: On 1 July 20X5 Gardener sold an item of plant to Jacaranda for a profit of $25 000.The remaining useful life of the plant at the date of transfer was 2 years. On 1 September 20X5,Gardener paid a dividend of $100 000 from profits earned prior to 30 June 20X5. Jacaranda lent $500 000 to Gardener on 1 January 20X6.Interest charged on the loan for the year ended 30 June 20X6 was $20 000 and for the year ended 30 June 20X7 was $40 000. On 31 May 20X6 Frangipani sold inventory to Gardener for $15 000.Profit earned on the sale was $1500.Gardener sold the inventory to external parties on 1 August 20X6. Details of profits earned by entities within the group for the years ended 30 June 20X6 and 30 June 20X7 are: The tax rate is 30%. The NCI share of profit in the Frangipani group for the year ended 30 June 20X6 is:

When a partly owned subsidiary receives a dividend from an entity that they have an interest in,an adjustment must be made to the current year profit prior to calculation of the direct NCI share of profit.

It is possible for an entity to lose control over its investment in another entity without a change in their ownership interest.