Basic groups - Question (NCI @ Proportionate method)
Have a look at this question and solution below and see if you can work out where all the figures in the solution have come from.
| | P | S |
| Non-Current Asset | 500 | 600 |
| Investment in S | 200 | |
| Current Assets | 100 | 200 |
| | | |
| Share Capital | 100 | 100 |
| Reserves | 300 | 400 |
| | | |
| Current Liabilities | 100 | 50 |
| Non-Current Liabilities | 300 | 250 |
P acquired 80% S when S’s reserves were 80.
Prepare the Consolidated SFP, assuming P uses the proportionate method for measuring NCI at acquisition.
Step 1: Prepare S’s Equity Table
| | Now | At Acquisition | Post-Acquisition |
| Share Capital | 100 | 100 | 0 |
| Retained Earnings | 400 | 80 | 320 |
| Total | 500 | 180 | 320 |
Step 2: Goodwill
| Consideration | 200 |
| NCI | 20% x 180 = 36 |
| FV of Net Assets Acquired | (180) |
| Goodwill | 56 |
Step 3: NCI
| NCI @ Acquisition | 36 | (from goodwill working above) |
| NCI % of S’s post acquisition profits | 64 | (20% x (400-80)) |
| Impairment | (0) | (DO NOT adjust for Impairment because its Proportionate method) |
| NCI on the SFP | 100 | |
Step 4: Reserves
| P | 300 | |
| S | 256 | (80% x (400-80) |
| Impairment | (0) | (100% because proportionate method x 0) |
| | 556 | |
Step 5: Group SFP
| | P | S | Group |
| Non-Current Asset | 500 | 600 | 1,100 |
| Investment in S | 200 | Goodwill | 56 |
| Current Assets | 100 | 200 | 300 |
| | | | |
| Share Capital | 100 | 100 | 100 |
| Reserves | 300 | 400 | 556 |
| NCI | | | 100 |
| | | | |
| Current Liabilities | 100 | 50 | 150 |
| Non-Current Liabilities | 300 | 250 | 550 |
Notice
1) Share Capital (and share premium) is always just the holding company
2) All P + S assets are just added together
3) “Investment in S”..becomes “Goodwill” in the consolidated SFP
4) NCI is an extra line in the equity section of consolidated SFP
5) Reserves = P + 80% of S's post-acquisition reserve