SBR Made Easy: Let's revise NCI

When you study consolidation, NCI-related entries are scattered around different topics. Let's organise everything neatly.

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Transcript

SPEAKER_00 0:00

Quite often the problem with studying SVR is that our knowledge is disorganized. So let's take NCI for example. We talk about it when we are talking about the changes in group structure, yes, but then we talk about it when we talk about forex. And kind of like we know the new piece of syllabus, but it's not connected to whatever we have learned. So let's sum up with what the lines in NCI calculation could be, and what are we going to talk about them in question one when we are often required to correct mistakes and explain the corrections. First of all, NCI is going to be recognized when we calculate goodwill. So at the point when we finally got control. Control is not necessarily received when we get 50 plus shares. No, sometimes we can have 40% of shareholding and still have control, and your question one is going to challenge you whether this happens or not. So pay attention to the date when goodwill needs to be calculated. And on that date, we will need to calculate NCI. And we can calculate it either at fair value or at share of fair value of net assets. And we can perform different calculations for different subsidiaries. So subsidiary A will have NCI that is stated at fair value. Subsidiary B will have NCI that was originally recognized as share of fair value of net assets. That is fine. But if your question one explicitly tells you that it's group's policy to measure NCI at fair value, and you see that the calculation uses the share of fair value of net assets, then you need to make an adjustment. And the adjustment is going to go against goodwill. So debit goodwill, credit NCI, because the value of NCI will be increased in this case. When we are talking about fair value in NCI, we can take the share price of a subsidiary, we can take the total number of shares that the subsidiary has, and quite often we need to look at the share capital and divide it by the nominal value of a single share, and times by the percentage that NCI holds. Sometimes we are given the value of NCI lock a number, like 20 million, and it can be used. So we have open in NCI. Now, when we're talking about whatever subsidiary earned, so this means PL and other comprehensive income, then whatever is earned is going to be split between the parent and NCI. Both PL and OCI. PL that belongs to the parent is going to go to return earnings. OCI that belongs to the parent will go to other components of equity to reserves, but not to retain earnings. As for NCI, we will take the first and the second part and add it to NCI. And it doesn't really matter what was the original type of the calculation of NCI. It's going to be increased by its share of total comprehensive income. So the total change of the difference in net assets. Now, with NCI, we may be asked to talk about goodwill impairment. And if we have NCI that was originally calculated at fair value, that's easy peasy. We calculate the impairment of Goodwill and we take the percentage and just deduct it from the value of NCI. But if NCI was originally calculated as share of fair value of net assets, then first we will have to gross up goodwill for calculation and we won't put anything into NCI calculation. I have a separate episode about Goodwill and NCI. Similarly, when we're talking about translation forex, when we're talking about translation forex in respect of goodwill, then if NCI was originally calculated at fair value, this means that we are going to share this for X, this translation difference, with NCI. If NCI was originally calculated as a share of fair value of net assets, then it has nothing in respect of goodwill. So no forex, no translation. But as for forex, as for translation differences for net assets, like the usual NAT assets, these will always be shared with NCI. Now what else could happen? Well, NCI can also get its share of PERP. Provision for unrealized profit. And we are going to do that when subsidiary is the seller. If subsidiary is the seller, then NCI will get its share of PERP. And I had a separate episode discussing how PERP can be calculated. But please be attentive. If you have already put it into net assets calculations and you calculate the increase in NCI as the difference between net assets at the purchase date and the reported date, then the PUB has always already been accounted for, so no further adjustment is needed. This further separate adjustment will be needed only if you add the subsidiaries PL and OCI that state in their statement of an A of total comprehensive income in the standalone one. And that is basically it. This is how we calculate NCI, and NCI, of course, is going to be increased by the new subsidiary. And of course, it's going to be increased or decreased by changes in control. And final and super important is that sometimes subsidiaries pay dividends. And when we're talking about dividends, dividends that are paid to the group, to the parent, is just left pocket, right pocket situation. So we are going to eliminate them. But if the dividend is paid to NCI, then it has to reduce the value of NCI. So we are going to deduct it from NCI calculation at the reporting date. I hope it was useful to you. And see you next. Subscribe not to miss new episodes.