US-CN Companies & Securities Law Assignment

Consolidation: other issues 1. Discuss the two types of NCI that may exist in a multiple subsidiary group structure. One feature of multiple subsidiary structures where a parent has an interest in a subsidiary that is itself a parent of another subsidiary is the need to classify the NCI ownership in the subsidiaries into direct non-controlling interest (DNCI) and indirect non-controlling interest (INCI). A DNCI exists where the NCI owns shares in a subsidiary. An INCI exists in a subsidiary where that subsidiary is owned by a partially owned subsidiary in the group. The NCI in the partially owned subsidiary is the INCI in the other subsidiary. Example: 80% 60% P Ltd A Ltd B Ltd P Ltd 80% P Ltd 48% DNCI 20% DNCI 40% INCI 12% 2. Explain the difference in the calculation of the direct and indirect N Direct NCI receives a proportionate share of all equity of the subsidiary over which it has direct ownership interest. Indirect NCI receives a proportionate...

1.Briefly describe the consolidation process in the case of wholly owned entities. The consolidation process in the process through which consolidated financial statements are prepared by adding together, line by line, the financial statements of the parent and its subsidiary to some very important consolidation adjustments. First, the financial statements that are added together must be comparable. Therefore, before undertaking the consolidation process it may be necessary to make adjustments in relation to the content of the financial statements of the subsidiary. Second, as part of the consolidation process, a number of other adjustments are made to the parent’s and the subsidiary’s statements, these being expressed in the form of journal entries. A worksheet or computer spreadsheet is often used to facilitate the addition process and to make the adjustments. 2.Explain the initial adjustments that may be required before undertaking the consolidation process. Before undertaki...

Consolidation: Non-Controlling Interest 1. What is meant by the term ‘non-controlling interest’ (NCI)? 2. Explain whether the NCI is better classified as debt or equity. NCI is the term used for the ownership interest in a subsidiary other than the parent. It is defined in AASB 10/IFRS 10 Consolidated Financial Statements as: • The equity in a subsidiary not attributable, directly or indirectly, to a parent. The non-controlling interest is still regarded as equity of the group. Hence there are effectively two equity parties in the group: the owners of the parent and the NCI. Classification of the NCI as equity affects both the calculation of the NCI as well as how it is disclosed in the consolidated financial statements. Measurement and disclosure of the NCI are mainly determined by AASB 10/IFRS 10 and AASB 101/IAS 1 Presentation of Financial Statements. 2. Explain whether the NCI is better classified as debt or equity. The non-controlling interest is regarded as equity o...

Consolidation: Intragroup Transactions 1. Why is it necessary to make adjustments for intragroup transactions? The consolidated financial statements are the statements of the group, i.e. an economic entity consisting of a parent and its subsidiaries. These consolidated financial statements then can only contain revenues, expenses, profits, assets and liabilities that relate to parties external to the group. Adjustments must be made for intragroup transactions as these are internal to the economic entity, and do not reflect the effects of transactions with external parties. This is consistent with the entity concept of consolidation, which defines the group as the net assets of the parent, together with the net assets of the subsidiaries. Transactions between these parties internal to the group must be adjusted in full. 2. Why is it important to identify intragroup transactions as current or previous period transactions? Current period intragroup transactions affect differen...