Seminar 09 Calculating NCInt Simple Example Colour
Seminar 09 Calculating NCInt Simple Example Colour
Calculation of the non-controlling interests’ amounts in the group share capital and
reserves is normally quite straight forward and will likely be the same as the non-
controlling share in these items as reported in the subsidiary reports. The calculation of
the subsidiary contribution to consolidated Net Profit and consolidated Retained
Earnings will be more complex if adjustments and eliminations have been made for
inter-entity unrealised profit and depreciation in upstream transactions.
The consolidation process would lead to the elimination of the $10,000 from the net
profit of the Sub, reducing the Sub contribution to consolidated profit by $10,000 to
$40,000. (The carrying amount of the asset is also adjusted so that the amount appears
in the group balance sheet as though sale had not taken place.)
Thus, when we calculate the NCI in the group profit we are calculating the NCI share
using the $40,000 that has actually been recognised in group profit in the consolidated
Income Statement. Only $40,000 was included, so the non-controlling interest (20%)
in the profit recognised by the group for the period will be:
= 20% of $40,000
= $8,000 (and not 20% of the $50,000 as reported in Sub's income statement)
In reality, we would also need to consider the tax consequences (as with the
consolidation adjustments), and it is likely that there will also be adjustments required
for depreciation, unrealised profit in the inventory sold to the Parent, etc.
1
Parent Sub Consol. Adjust. Consolid. NCI Adjust. Economic
Dr Cr Dr Cr Entity
$ '000 $ '000 $ '000 $ '000 $ '000 $ '000 $ '000 $ '000
Revenues 5,000 1,000 6,000 6,000
Expenses (4,800) (960) (5,760) (5,760)
Gain on sale M/V 10 10 2 0 0
Net Profit 200 50 240 240 total for group