ACCA Strategic Business Reporting (SBR) Practice Exam

What happens when a parent company sells shares to non-controlling interests (NCI) in group accounts?

1. Recorded as a loss in the income statement

2. Recorded in equity

3. Ignored in the financial statements

4. Considered an expense

The correct answer is: Recorded in equity

When a parent company sells shares to non-controlling interests (NCI) in group accounts, the transaction is recorded in equity. This is because the sale of shares to NCI represents a change in ownership interest within the equity section of the consolidated financial statements, rather than impacting the income statement or being treated as an expense. When the parent sells additional shares to NCI, the distinction between controlling and non-controlling interests is critical in group accounts. The proceeds from the sale are added to the equity attributable to NCI, which reflects the parents' ownership interest decreasing and NCI's ownership interest increasing without affecting the overall consolidated profit or loss. Therefore, this type of transaction effectively alters the balance sheet but does not impact profit or loss from operations or incur any expense, which reinforces the treatment of such transactions as adjustments within equity rather than income-related accounts.