ACCA Applied Knowledge · Financial Accounting · Subsidiaries
Parent acquired 75% of Sub on 1 January when Sub's retained earnings were $40,000. Share capital of Sub is $100,000. At the reporting date Sub's retained earnings are $70,000. Non-controlling interest is measured at the proportionate share of net assets, and there are no fair value adjustments. What is the non-controlling interest at the reporting date?
The non-controlling interest is $42,500. Sub's net assets at the reporting date are $170,000 (share capital $100,000 plus retained earnings $70,000), and the non-controlling shareholders own 25% of that under the proportionate method.
- A$42,500Correct
- B$35,000
- C$32,500
- D$52,500
Explanation
Net assets at the reporting date = 100,000 + 70,000 = 170,000. NCI = 25% × 170,000 = $42,500. Using only the post-acquisition reserves ($7,500) plus the NCI share of the acquisition-date net assets would give the same figure; $35,000 wrongly uses 25% of 140,000 (acquisition net assets).
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