Question 5:

Non-controlling interest is sometimes referred to as the minority interest. According to Walker (2011), it is that percentage of equity ownership in a subsidiary company that is directly or indirectly not attributable to the parent company with a controlling interest and consolidates the financial outcomes of the subsidiary with its own. In other words it is that percentage of shares owned by other parties other than the parent company that owns more than 50% but less than 100% in a subsidiary. As noted in AASB.127, non-controlling interest represents the part of the equity capital for which the parent company cannot claim legal ownership since it shows what rightfully belongs to the external business stakeholders.

In its 2016 annual financial report, Wesfarmerslimited, though presented to have 100% ownership interest in most of its subsidiaries, has a non-controlling interest in three of its subsidiaries. That is in Australian Gold Reagents Pty Ltd in which it controls only 75% of the overall corporate interest reflecting a minority interest of 25%. In Coles Ansett Travel Pty Limited, Wesfarmers has a total control interest of 97.5%, thus, 2.5% non-controlling interest (Wesfarmers, 2016). In the above examples, the company owns more than 50% of the shares in the other firms making them subsidiaries. It is referred to as minority or non-controlling interest because the owners of the 2.5% and 25% shares have a small percentage of shares that do not warrant them ownership or decision making.

In consolidation, non-controlling interest is reported in the statement of financial position of a parent company at the shareholders’ equity section separately (Deegan, 2012). That is separate from the parent’s equity. Minority interest is, thus, not reported in the mezzanine statement between liabilities and equity. The figures of consolidated net income whose ownership is directly or indirectly attributable to the parent company and the minority interest must be identified and presented clearly in the consolidated income statement.

Any income attributed to the Minority is also displayed in the income statement separately, clearly indicating non-controlling interest. This ensures that in as much as the Westfarmers have controls the subsidiary, there is a small percentage of both income and equity that is owned by the minority interest. The beginning and ending equity attributed to non-controlling interest needs to be disclosed in the financial statements as per the Financial Accounting Standards Board.

Question 6:

In a business combination, the fair value of the property or business acquired may, sometimes, exceed the current non-controlling interest plus the acquisition cost. According to a report issued by Financial reporting Council (FRC), this excess value over the current fair value of the subsidiary company’s net assets is often debited to create goodwill. However, in case of deficiency in the acquisition cost relative to the subsidiary company’s fair value, then the negative amount or shortage is reported as a gain. If the amount paid in purchasing a subsidiary is more than its fair value, then it means that there is goodwill. A parent company is allowed to calculate goodwill as the sum of goodwill arising from all the acquisitions in which the difference between the fair values and the current value is material.

In the report, Wesfarmers realized a total $14,448 million in goodwill with only $1,018 million attributed to the acquisition of controlled entities (Wesfarmers, 2016). Based on the requirements of the Australian Accounting Standards, the company measures its goodwill assets at cost. That is, the cost of acquisition less the net fair amount of the identifiable assets acquired, liabilities and other relevant contingent liabilities.

In accounting, goodwill often represents an intangible asset that arises when the purchase consideration of a business below its fair value at the time of purchase (Walker, 2011). These assets, however, are not separately identifiable. Goodwill is, thus, found in the fixed asset section of a balance sheet contributing positively in a company’s state of affairs (Seetharaman, Balachandran & Saravanan, 2004). Under the Australian Accounting Standards number 18, goodwill is never amortized. However, as seen in the Wesfarmers financial report for the year ended 2016, Management should value goodwill every year to establish if an impairment is necessary. An impairment often denotes a reduction in the value of an intangible asset.

For goodwill, an impairment is often when the fair market value of a subsidiary goes below its historical cost (Henderson et al., 2015). That is the cost for which it was purchased. A rise in the market value, on the other hands, is not included in the financial statements. For the year ended December 2016, Wesfarmers reported a goodwill impairment charge of $1,208 million (Wesfarmers, 2016). Impairment charge often reduces the value of goodwill and is, thus, lessened from the initial value. An impaired goodwill is disclosed in the income statement as an expense like depreciation in the case of tangible assets. Impaired goodwill reduces the profits of a firm as it is deducted from the gross profits to arrive at the net profits.


Deegan, C. (2012). Australian financial accounting. McGraw-Hill Education Australia.

Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting. Pearson Higher Education AU.

Seetharaman, A., Balachandran, M., & Saravanan, A. S. (2004). Accounting treatment of goodwill: yesterday, today and tomorrow: Problems and prospects in the international perspective. Journal of intellectual capital5(1), 131-152.

Walker, R. G. (2011). Issues in the preparation of public sector consolidated statements. Abacus47(4), 477-500.

Wesfarmers (2016). Annual financial report 2016. Available at