The step approach

Frog Ltd acquired 60% of the shares of Kovrov Ltd in February 2017. Although Frog Ltd has 100% subsidiaries this is the first acquisition that Frog Ltd has made with a non-controlling interest partly funding the other company. The accountant for Frog Ltd, Nikki Romanov, is concerned about the approach she should take in preparing the consolidated financial statements for the newly established group. She asked you to write a report advising her as to the best approach she could take when she prepares the consolidated financial statements for Kovrov Group of companies. In particular, she is concerned about the calculation of the NCI share of equity, particularly in the years after acquisition date. She has heard accountants in other companies talking about a step approach, and in particular how this makes accounting in periods after the acquisition date very easy as it is then necessary to prepare only one step.

Show examples along with explanations of each steps.

Required

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