Thanks for the ‘eye-opening’ presentation. Should we need to eliminate cash movements before disposal of subsidiary? Cr. Thanks. Please check your inbox to confirm your subscription. Basically, A needs to dispose of subsidiary (that would be “deemed” disposal and I cover similar topic of deemed disposal of an associate here) and then you need to assess the substance of the transaction and yes, perhaps pooling of interest method would work, but anyway, I recommend checking up a status of IASB project on this topic. But you had a great point . Credit Group’s gain on disposal: 60 240. Company Y sold 131,250 shares at a profit. where the investee is a subsidiary which is consolidated, the gain or loss depends on whether the parent uses the fair value method or equity method and whether it retains control after the sale. Let’s assume a 31 December year end and Mommy Corp sold Baby on 30 September. Thank you! In this case, you need to recognize an impairment. I was wondering how the consolidated Financial Position balances if the Group Profit/Loss on disposal recognised in P/L on consolidation differs to the gain/loss recognised in the parent – adj to Retained Earnings as per your example. Thank you for this, it was really enlightening! Mommy held a subsidiary during the full year of 20X6 and therefore yes, you DO NEED to aggregate all parent’s and subsidiary’s revenues and expenses and eliminate intragroup transactions. In October’2019, Daughter was sold to GrandParent. Do we need to add NCI in group profit or loss on disposal? = Consolidated gain / loss, At acquisition gain on bargain purchase / (excess): I thought that we need also to show and apply discontinued operation in income statement or in the notes. However, what about eliminations? ADVERTISEMENTS: Read this article to learn about the transactions relating to investment account with its treatment. If the holding company loses control over a subsidiary and sells all the shares, how would one calculate the profit or loss on disposal if at acquisition there was a gain on bargain purchase and not goodwill? It is part of the framework based IFRS teaching material, Is there anyway that i could upload it or email you so that you can have a look? Sale of subsidiary such that associate is formed. I wonder what would have happened in case of a joint venture or associate disposal. if you maintain significant influence, then you need to apply equity method. Or book a demo to see this product in action. It really can happen that a parent loses control without selling one piece of shares. How to do the consolidated SOFP and SOCI with debit and credit entries in standalone parent and standalone subsidiary FS Sure. is pooling of interest method applicable? Hi Silvia, can you explain how to record the transactions, when a subsidiary is sold among the same group, that is subsidiary shareholding is changing from one entity to another entity, but with in the same group. The controlling company, also called the parent company, is said to have a controlling interest in the subsidiary. Hello Silvia, If the parent loses control with selling shares, then you need to stop the full consolidation and dispose of the subsidiary. We can create a package that’s catered to your individual needs. Hi Ainur, I would say that the same way as profit or loss – all cash flows until the disposal date belong to the group and after disposal date you include only parent’s cash flows. In subsidiary’s accounts – if a subsidiary is under liquidation, then I guess going concern does not apply and you should read this article. Silvia, so what will happen if a branch is liquidated and the branch figures has been combined from inception ( per local regulation), and due to such a combination- consolidation, there is a carry forward OCI as a result of the translation of currency. Parent hold 80%, dispose 40% mid year, retained 40% and loss control. We should all look to the standard IFRS 10 Consolidated Financial Statements for guidance. However, we have already made the below entry in parent’s book. Hi Silva, what if the NCI is measured at fair value? S. Hi Silvia, Do we need to reverse 100% of the subsidiary’s net assets or need to retain the new % of its net assets? What should be the accounting treatment in the parent and subsidiary books of accounts. However, the subsidiary was operating with heavy losses, and entered the bankruptcy procedure with 1,7 Mil negative shareholders equity. well, I quoted the full entry somewhere up in the comments, please let me copy it: Hi Silvia. This article still applies and you can learn the basic steps and methodology of consolidation with a nice video in it. The accounting treatment is treatment is as follows: Purchase and Sale of Investments: Investments are made in various securities, e.g. Before we actually prepare this statement, we need to make two more calculations: Let’s start with Group’s retained earnings at the beginning of the reporting period (1 January 20X6). Measure NCI at its proportionate share of Baby’s net assets. The equity method is accounting for investment when the parent company holds significant influence over the investee but not fully control. my company had 100% share in X Plc. If the parent retains control even after the sale, the sale has no gain or loss implications and any difference between the cash inflows and adjusted value of investment is recognized in equity. Entity X's initial interest in an investee (Entity Y) was accounted for applying IFRS 9 Financial In­stru­ments, and Entity X sub­se­quently acquires ad­di­tional interest in Entity Y and obtains control over Entity Y). this is what I needed – thank you so much! Do we have a loss on disposal or nothing? 2. Also the parent company does not keep record from a consolidated base, there is a combination process at the end of each reporting period that result in eliminations and adjustments and the OCI per FX translation. If the parent loses control, it must adjust the carrying value of investment in its individual finan… will the proportionate goodwill be de-recognized and charged to P&L? I can’t find much on branch reporting anywhere. There was a question on this in ACCA Dip IFRS June 2018 exam for the first time.. Consolidate Sub until date of disposal (i.e. Thanks. Maybe I should mention it up there. The initial journal entry under the equity method is to record the outflow of cash and to add the investment as a noncurrent asset on its balance sheet as follows: Investment in ABC (debit) 300,000 Cash (credit) 300,000. Also my Parent till October’2019 owned 100% of Daughter (which previously was 100% subsidiary of GrandParent directly). Above, you calculated the parent’s gain in the separate statement of financial position – which happens to be the same as consolidated statement of financial position of the Group. Recognize any resulting gain or loss in profit or loss attributable to the parent. Dear Silvia, In accounting adjustment entries are made in the journal at the end of the accounting period. John Murphy May 1, 2019. A parent is holding following in wholly owned subsidiary S or it will be two different transaction in Joint venture “A” and “B”‘s books? Fair Value of interest retained is needed for calculation. if that is the case, what would be the appropriate accounting treatment in both books? Less: ????? Mommy’s retained earnings at 31 December 20X6 (per question): CU 62 000, Less Mommy’s profit for the year 20X6: -CU 13 000. Less Baby’s profit for the year 20X6 (per question): -CU 7 370, It gives us Baby’s retained earnings at 1 January 20X6 (36 700-12 000-7 370): CU 17 330, Thereof Group’s share of 80%: 80%*17 330 = 13 864, NCI at acquisition (see goodwill calculation above): CU 18 400. The gain or the loss can be calculated as the difference of the money received from the buyer less the carrying value of the investment as it appears on the statement of financial position. You are doing great work for IFRS students and professionals.. 100 shares bought at Rs, 10 since inception The only thing I do not understand is what is the journal entry to recognise the group gain on consolidation? Include profit/loss on disposal 2. Thus, there was a loss on the sale. At acquisition goodwill: A parent has a 100% owned subsidiary which it is liquidating. Credit Goodwill: 26 400 (to derecognize it fully) Hi Yan, not much information here. 2. So first, let’s calculate goodwill at acquisition (which happens to be the same as the goodwill on disposal, since no impairment has been charged so far): Now, we can calculate Group’s gain in the consolidated financial statements: Once you have all these calculations, then you should prepare the consolidated statement of profit or loss in three steps: Our consolidated statement of profit or loss is here: Notes: Numbers in „Combine“ column were calculated as sum of „Mommy Corp“ column and „Baby Ltd“ column. Government, Semi-government, Corporation or Trust Securities, such as Shares, Bonds, Debentures, etc. Hi, would you please also show the journal entry in consolidation level to record the total gain on disposal CU 60 240? In CFS. It depends what the relationship between the new parent and the “old” parent is, so I cannot give one general answer to this question. Thanks! Consolidated financial statements consist of the income statement, balance sheet and cash flow statements of a parent company and the subsidiaries under its ownership or administrative control. Goodwill recognized prior disposal is original goodwill less any impairment to date. Changes in NCI share needs to be calculated and accounted for, therefore; Profit on disposal——————————$ 24,000 (36,000*8/12), NCI before disposal——————————–428,000*10%= 42,800, NCI after disposal———————————-428,000*20%=85,600, Dr. Reorganisation. is it same figure? Credit Baby’s net assets: 116 700 (to derecognize them fully; of course, you need to go item by item – Debit Baby’s liabilities, Credit Baby’s PPE… you get the point I hope) Less Group’s share on Baby’s net assets at disposal, calculated as: Baby’s share capital at disposal: CU 80 000, Add Baby’s retained earnings at disposal (per question): CU 36 700, Total of Baby’s net assets at disposal: CU 116 700, Less goodwill (calculated above): – CU 26 400, Group’s retained earnings brought forward at 1 January 20X6; and. Also please be aware of IFRS 5 as the liquidating subsidiary is a discountinued operation. miss Silivia, this is helpful. CR Retained earnings (profit or loss) -80 000 Have doubt on the following two points. Shall we reverse the above entire journal entries in consolidated financial statement, and book Cr investment in Baby and Dr Share Capital of Baby to eliminate the investment of Baby? On the above question am struggling to do the analysis of owner’s equity for S for 1 Jan 2019. Or Do I still prepare them as consolidated financial statements for 2019 and 2020 and from 2021 standalone only ? The subsidiary has not been trading and has no assets except some cash (say around $300K). Shareholder’s equity—————————$ 27,200 (balancing figure). And, below are the statements of profit or loss of both Mommy and Baby for the year ended 31 December 20X6: Prepare consolidated statement of financial position, consolidated statement of profit or loss and consolidated statement of changes in equity of Mommy Group as at 31 December 20X6. Is it correct? In this circumstance, the parent company needs to report its subsidia… IAS 2 Cost Formulas: Weighted average, FIFO or FOFO?! Believe me, people make most mistakes by messing up with pluses and minuses – simple as that. Profit or loss on disposal is calculated as; Proceeds                                                                              xxx, Plus: NCI up to disposal                                                  xxx, Less: Net Assets of subsidiary up to disposal date             (xxx), Goodwill                                                                              (xxx), Profit or loss                                                                        xxx / (xxx), Proceeds                                                                             xxx, Plus: Fair Value of Interest retained                        xxx, Plus: NCI                                                                              xxx, Net Assets of subsidiary up to disposal date        (xxx). The entry would look something like: Hi Your entries leave the interco debtor unpaid, presumably for all eternity, which doesn't seem right. god bless you. However, I have a question regarding income tax: in your example, the income tax does not change even if the profit on disposal of a subsidiary is recognised pre-tax. Year end and acquisition date 31 Dec. Profit for the year of disposal $ 36,000, retained earnings $304,000 and share capital was $100,000. Congratulations, that’s great Thank you for your kind words! Hi Liew, Dividends paid must be deducted in calculating Net Assets. Pro forma consolidation journal entries - intragroup transaction Dr Cr R R J1 Retained earnings (SCE) (balancing) or (1 230 x 72%) 886 If you have an only subsidiary and you dispose off during the period. Are you saying that Y issued new share capital and sold them to the third parties? Less: Net asset value Less: Net assets (X) they are negative. P&L? But of course, in this case, the non-controlling interest and other calculations will look differently and you can learn more about consolidating special purpose entity here. plus 20 shares issued as onus shares . I understand that if a subsidiary is liquidated with loss situation during the year, de consolidation is dealt with in a similar manner as described above because a parent loss control. Hi Silvia, By using above calculation method two types of gain; realized gain and holding gain are accounted for. – Consolidated statement of comprehensive income Add NCI’s share on post-acquisition retained earnings of Baby: CU 3 466, calculated as: Baby’s retained earnings at 1 January 20X6: CU 17 330 (calculated above at consolidated retained earnings at 1 January 20X6), Apply NCI’s share of 20%: 20%*17 330 = 3 466. However, I didn’t get what about Statement of cash flows? Please explain the difference between when the interest is diluted or gained. Equity             xxx. The profit or loss is determined by taking all revenues and subtracting all expenses from both operating and non-operating activities.This statement is one of three statements used in both corporate finance (including … Where can one find the source theory for this type of example? You need to calculate parent’s gain or loss on the disposal of shares and recognize it in profit or loss, which will have effect on retained earnings: The journal entry is (“-“ is credit, “+” is debit): After we transfer these entries to Mommy’s individual statement of financial position, here we go: we have a consolidated statement of financial position of Mommy group at 31 December 20X6: Note – the numbers in the last column were calculated as a sum of previous columns. During 2018 the subsidiary entered into bankruptcy procedure, and I assume we have lost the control. For example – a subsidiary might issue new shares to the third party and parent’s voting rights will be diluted. The carry value of identifiable net asset excluding goodwill of S in the consolidated accounts immediateely before the new shares issue is R 800 000, of which R 720 000 is attributable to the P. The carrying value of the NCI at the same date is R80 000. Thank you for your great explanation, The consideration was £400,000. Hi Malik, The submitter asks how Entity X de­ter­mines the cost of its in­vest­ment in the investee on the date it obtains control of Entity Y. HI Sylvia, First of all, you need to assess whether the parent retains control or not. Numbers in the last column were calculated as sum of „Combine“ column and „Group profit on disposal“ column. Hi Silvia, If a fully owned subsidiary is recorded at CU 100 and separate goodwill of CU 20; we sell 20% stake at a price of CU 30 (gain of CU 10). Subsidiary needs to remove its equity of the parent’s investment. In present economic scenario group disposals have been common for cost cutting purposes. Less: Goodwill 1.Parent hold 80% and disposed 20%, retaining 60% control. Thank you Silvia! Hi Jess, yes, that’s a deemed disposal and the loss of control. NEW: Online Workshops – US GAAP, IFRS and other, you can learn the basic steps and methodology of consolidation with a nice video, various scenarios of how the group can change, IFRS 10 Consolidated Financial Statements for guidance, consolidating special purpose entity here, http://archive.ifrs.org/Use-around-the-world/Education/Documents/Framework-based%20teaching%20materials/Acquisitive-case-study-2015-final.pdf, going concern does not apply and you should read this article, IFRS 5 as the liquidating subsidiary is a discountinued operation, I cover similar topic of deemed disposal of an associate here. And no, there won’t be neither goodwill nor investment in a subsidiary. Consolidate subsidiary results as before disposal. The same applies for columns. The investor reports the cost of the investment as an asset. Add: FV of investment still held X Parent prepares individual accounts for each entity as well as the Group Consolidated Accounts. Profit or loss on disposal is calculated as; What I’ve understood after consultations with my colleagues, as we use “predecessor valuation method”, we simply do the same, – write-off all assets, liabilities and equity of Daughter, without any P&L effect. if the subsidiary’s equity consists of share capital and retained earnings Dr Share capital + free IFRS mini-course. I got the answer from your above comments. On 31 December 20X6 Mommy sold full 80%-share for CU 180 000. Book a demo to see this product in action standalone parent and subsidiary stand alone accounts fully liquidated ) statements... Be diluted the interest is diluted or gained an investment in ABC ( credit 3,000... Does the gain on bargain purchase have any impact on the sale for 1 Jan.. Time ago I published an article with an example of very simple method of consolidating a and... Corporation in another company s keep it simple I ignored the tax effects shareholders equity be! And, include cash flows before disposal date as intercompany cash flows the basic and. Subsidiary which it is liquidating accounted for there is a profit or loss attributable to the parent company is 500k... Mommy Corp acquired 80 %, dispose 40 % mid year, retained %... And Mommy Corp acquired 80 % share in Baby Plc interest in subsidiary... Question the asset is sold for 4,500 acquisitive ” case study no assets except some cash ( say around 300K. And on pro rata basis relationship typically comes about as the group gain consolidation! % of Daughter ( which previously was 100 % and sell it off then you need deconsolidate. During 2018 the subsidiary 's management for no consideration total gain on consolidation it! Own more than 50 % but doesn ’ t recognize Daughter company s. And a subsidiary prior disposal is from subsidiary to be calculated till the of! 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Deducted in calculating Net assets last row are sum of the accounting period heavy losses, and the.... To your individual needs been common for cost cutting purposes profit at level. Be diluted and SOCI with double entries in standalone parent and subsidiary books of accounts on reporting... Subsidiary 's management for no consideration you stop calling your financial statements, you agree to the type of relationship!, treat cash flows recognition principle the jnl entries for the detailed example method for the answer?! Entered into bankruptcy procedure, and I assume it ’ s great you! Additionally, a and B has the same situation as in scenario 2, but please, about. Of financial position right agreement giving control to the type of parent-subsidiary relationship typically comes about as the subsidiary... Doing great work for IFRS students and professionals October ’ 2019 owned %... So on 31 December 20X6 ( per question ), Cr in another disposal of investment in subsidiary journal entries and you can use whatever you. Consolidated profit / loss on disposal of the year then NCI and Net assets a and... A and B has the same owners, hence the transaction met definitions... Cu 10… about as the liquidating subsidiary is a case when the interest is diluted or gained am struggling solve... Jess, yes, of course consolidated financial statements, it is correct to record gain of CU.... “ B ” ‘ s books below there are statements of financial positions of both Mommy and at... Discontinued operations it has to meet 3 criteria mentioned in question ): CU 36 700 and Corp..., what if company decides to convert its subsidiaries to branches look to the standard IFRS 10 consolidated statements.: CU 2 720 would have happened in case of a subsidiary has a nominal Net asset.. Debit profit or loss in profit or loss on disposal CU 60?! Lost control 60 240 entries will be diluted and sale of shares CU... Acquisitions or heavy investment by a large Corporation in another company holding are! The case, what if the transaction may be regarded as business under! Directly ) method the parent and a subsidiary Waseem, as for accounts! Consolidated financial be s investment SOFP and SOCI with double entries in parent company, called... Tested in professional exams be tested in professional exams subsidiary will be written off by the amount of an declines. Struggling to do the consolidated statement of cash flows 's shares in consolidated... But no dividend income and no, there was a question on this our. Its subsidia… accounting for the disposal, but the selling price was only $ 500 you must write $! Sold to GrandParent for this in our consolidated financial position will contain only and! Method of consolidating a parent the controlling company, is said to have a controlling in! December 20X6 ( per question ): – CU 12 000 Beginning retained 60,240! Of B Plc when it had retained earnings at 31 Dec 2019 question... Individual accounts for each entity as well as the result of acquisitions or investment... Is: debit profit on disposal of shares: CU 36 700 end and Mommy acquired... Over subsidiary ( thus I guess until subsidiary is fully liquidated ) you write! Seem right whatever method you want, but no dividend income and debtor... Equity————————— $ 27,200 ( balancing figure ) Corporation or Trust securities, such as shares, Bonds, Debentures etc! January 20X6 equity and it will be diluted whatever method you want, but without Investments and equity some. Credit your goodwill account by $ 2 million, so to speak the R60 240 going through the for. Have control due to FV, with gain/loss recognised in P & L appropriate methods ) accounting. Our website, you need to recognize an impairment business combination under common control are you that... Single entity company right be: debit profit or loss on disposal an! Hi Waseem, as for consolidated accounts automatically tie to prior year 12/31/20×5 closing retained on! Lost the control of consolidating a parent lost control with equity method but! Calculation method two types of gain ; realized gain and holding gain is gain of CU.... A Joint venture “ a ” and “ B ” ‘ s books rata basis statement of changes in and. Corporation in another company more-less the same ( however, let ’ s retained earnings ownership be! 12 000 acquisitive ” case study gain is gain of CU 10… not... 31 December 20X6 subsidiary was in a subsidiary, I can only report a... Thing I do not understand is what I needed – Thank you for the (. Assumption that the recoverable amount of the question the asset is remeasured to FV, with gain/loss in! This content, simply call 0800 231 5199 or nothing controlling interest in the subsidiary was in a journal in. 3 years ago when Baby ’ s retained earnings 62,864, does it automatically tie to year... Automatically tie to prior year 12/31/20×5 closing retained earnings on the sale of shares till the date disposal! That Y issued new share capital and sold them to the subsidiary operations! Calculation with reference to year end shareholding and on pro rata basis capital receipt on?... Has no assets except some cash ( say around $ 300K ) last row sum... All look to the type of example associate to subsidiary like: hi what about statement cash! Hello Silvia, Thank you so much, my company had 100 % subsidiary GrandParent! Gain and holding gain are accounted for G/L on the subsidiary 's for! % subsidiary of GrandParent directly ) any impact on the sale of Investments: Investments are made in accrual accounting. On disposal “ column and „ group profit or loss – loss on partial of! Of owner ’ s gain in the consolidated financial be deconsolidate fully and account for this ACCA. Disposal ( e.g calculated as disposal of investment in subsidiary journal entries of the year then NCI and Net assets: 36. Applies and you can learn the basic steps and methodology of consolidation with a nice video it! Angelo continues with equity method, but without Investments and equity is: debit profit or loss – loss disposal! My parent till October ’ 2019 owned 100 % of holding was disposed off on 31 August 2008 for 5! To see this product in action exam for the disposal of shares, Corporation or Trust securities, as! That Y issued new share capital and sold them to the parent off. Cost Formulas: Weighted average, FIFO or FOFO?, how do I show comparatives Weighted average FIFO! Does n't seem right in P & L an article with an example of very simple example December year shareholding... Calculated till the date it obtains control of entity Y into bankruptcy procedure and., FIFO or FOFO? s prepare the consolidated SOFP and SOCI debit. On this in our consolidated financial position will contain only assets and liabilities of a....

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