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2. Noncontrolling interests in the profit or loss of consolidated subsidiaries for the reporting period are identified
3. Noncontrolling interests in the net assets of consolidated subsidiaries are identified separately from the parent’s ownership interests in them. Noncontrolling
interests in the net assets consist of the following two items:
a. The amount of those noncontrolling interests at the date of the original combination calculated in accordance with IFRS 3.
b. The noncontrolling interests’ share of changes in equity since the date of the combination.
Noncontrolling interests must be presented in the consolidated statement of financial position within equity separately from the equity of the owners of the parent.
Total comprehensive income must be attributed to the owners of the parent and to the noncontrolling interests even if this results in the noncontrolling interests having
a deficit balance.
All intergroup transactions, balances, income, and expenditures should be eliminated in full. Any intergroup losses on items may be indicative of an impairment loss
and may require recognition in the consolidated financial statements.
The financial statements of the parent and its subsidiaries should be prepared using the same reporting date. If the reporting dates are different, the subsidiary should
prepare additional financial statements for consolidation purposes as of the same date of the parent entity, unless it is impracticable to do so. In this case, adjustments
must be made for the effects of significant transactions that have occurred between the date of the subsidiary’s and the date of the parent entity’s financial statements.
The difference between these dates should never be more than three months.
PRACTICAL INSIGHT
Agrana Beteiligung AG, an Austrian entity, states that those subsidiaries’ financial statements with different year-ends all fell within the three-month
window. The ends of the reporting periods of all subsidiaries have been harmonized to the end of February. A note in the financial statements cautions that
this should be taken into account for comparability purposes and discloses an increase in revenue of €40 million and an increase in profit after tax of €2
million.
If the loss that is applicable to the minority exceeds the noncontrolling interest in the equity of the subsidiary, then the excess and any further losses attributable to
the minority are charged to the group, unless the minority has a binding obligation to make good the losses.
When such a subsidiary subsequently reports profits, all such profits will be attributable to the group until the minority’s share of losses, which have been absorbed
by the group, have been recovered.
In the separate financial statements of the parent entity, investments in subsidiaries, associates, and jointly controlled entities should be accounted for by either
measuring the investments at cost or in accordance with IAS 39. Any such items that are classified as held for sale should be accounted for in accordance with IFRS 5.
Investments in jointly controlled entities and associates that are accounted for in accordance with IAS 39 in the consolidated financial statements (i.e., when a
subsidiary ceases to be a subsidiary, associate, or joint venture) must be accounted for in the same way in the investor’s separate financial statements.
CHANGES IN THE OWNERSHIP INTERESTS
The revised Standard moves IFRS to the use of the economic entity model. Current practice is the parent company approach. The economic entity approach treats
all providers of equity capital as shareholders of the entity, even when they are not shareholders in the parent company. The parent company approach sees the
financial statements from the perspective of the parent company shareholders.
For example, disposal of a partial interest in a subsidiary in which the parent company retains control does not result in a gain or loss but in an increase or decrease
in equity under the economic entity approach. Purchase of some or all of the noncontrolling interest is treated as a treasury transaction and accounted for in equity. A
partial disposal of an interest in a subsidiary in which the parent company loses control but retains an interest as an associate creates the recognition of gain or loss on
the entire interest. A gain or loss is recognized on the part that has been disposed of and a further holding gain is recognized on the interest retained, being the
difference between the fair value of the interest and the book value of the interest. The gains are recognized in the statement of comprehensive income. Amendments to
IAS 28, Investments in Associates, and IAS 31, Interests in Joint Ventures, extend this treatment to associates and joint ventures.
CASE STUDY 3
On January 1, 20X9, Race acquired 70% of the equity interests of Pine, a public limited company. The purchase consideration comprised cash of $360
million. The fair value of the identifiable net assets was $480 million. The fair value of the noncontrolling interest in Pine was $210 million on January 1,
20X9. Race wishes to use the “full goodwill” method for all acquisitions. Race acquired a further 10% interest from the noncontrolling interests (NCI) in
Pine on December 31, 20X9, for a cash consideration of $85 million. The carrying value of the net assets of Pine was $535 million at December 31, 20X9.
Required
How should the further interest be accounted for?
Solution
The net assets of Pine have increased by $(535 – 480) million, that is, $55 million and therefore the NCI has increased by 30% of $55 million, that is,
$16.5 million. However Race has purchased an additional 10% of the shares and this is treated as a treasury transaction. There is no adjustment to goodwill
on the further acquisition.