Discussion Questions Phuc is the accountant for Jane Ltd. This entity has an 80%

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Discussion Questions

Phuc is the accountant for Jane Ltd. This entity has an 80% holding in the entity Doe Ltd. Phuc is concerned that the consolidated financial statements prepared under AASB 10/IFRS 10 may be misleading. He believes that the NCI in Doe Ltd does not belong to the group and it should be treated as a liability, rather than as a part of consolidated equity. He therefore wants to prepare the consolidated financial statements showing the NCI in Doe Ltd under liabilities in the statement of financial position, and for the statement of profit and loss and other comprehensive income and the statement of changes in equity to show the profit numbers relating to the parent shareholders only. Phuc also has concerns about the effects of intragroup transactions on the calculation of the NCI share of equity. In particular, he wants to know why it is important to adjust the NCI share of equity for the effects of intragroup transactions, and whether it is necessary to make NCI adjustments in relation to all intragroup transactions.

1. Referring to the first paragraph, explain whether the NCI would be better classified as debt or equity. What are the implications of such classification in relation to the preparation of consolidated financial statements?

2. Referring to the second paragraph, explain Phuc’s two areas of concern.

Explanation / Answer

1) As per IFRS 10 Non controlling Interest should be presented as follows " A parent must present non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent."

Thus the contention of Phuc is not valid and it will form part of Equity.

2) In income and expense statement all the items will be grouped of Parents as well as subsidiarys whole statement(including NCI's share)

3) IFRS requires Elimination in full of all intra-group transactions and balances.

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