George Ltd acquired 60% of the shares of Orwell Ltd in February 2017. Although George Ltd has 100% subsidiaries this is the first acquisition that George Ltd has made with a non-controlling interest (NCI) partly funding the other company. Eric Blair, the financial accountant of George Ltd has asked you to write a report advising him as to the best approach he should take when he prepares the consolidated financial statements for the Orwell Group of companies.

As he has never had to calculate the share of the equity in Orwell Ltd funded by the NCI he is worried about how he should calculate it. He is especially interested in how the calculation should take place in the years after the acquisition date. He tells you that some of his colleagues in other companies have mentioned a step approach which apparently makes accounting for the accounting periods after the date of acquisition very easy as it is then necessary to prepare only one step.

Required Prepare a report for Eric, explaining the step approach to the calculation of NCI and the effects of this approach in the years after the date of acquisition.

(5 marks)

The report should take the format of a formal business report, written by your firm with yourself as lead author. Marks will be awarded for presentation style and an appropriate business format.