Chapter 17: Disposal of Subsidiaries

Question 1

How do you calculate the gain/loss on the disposal of a subsidiary in the parent company’s accounts?

Answer 1

(add) Sale proceeds
(less) Cost (for the purposes of FAR, this will be cost)
—————
Gain/(loss) to parent

Question 2

Where is the gain/loss on a subsidiary reported?

Answer 2

The gain or loss is reported as an exceptional item and should be disclosed separately on the face of the parent’s SPL after operating profit

Question 3

How is the disposal of a subsidiary reported in the statement of financial position?

Answer 3

At the year-end, no shares are held and therefore the disposed of subsidiary is not represented in the group statement of financial position

Question 4

How is the disposal of a subsidiary reported in the statement of profit or loss?

Answer 4

• The disposal will be presented as one line ‘Profit/(loss) from discontinued operations’

The figure will include:

• 100% of the subsidiary’s results consolidated up to the date of disposal
• Gain/(loss) on disposal

Question 5

How is the disposal of a subsidiary reported in the statement of changes in equity?

Answer 5

Eliminate the non-controlling interest in the subsidiary that has been disposed of 
NCI:
(add) B/f
(add) NCI% of profit for period
(less) NCI% of dividends
(less) Eliminated on disposal

Question 6

How do you calculate the group profit/loss on the disposal of a subsidiary? Where is it included?

Answer 6

(add) Sale proceeds
(add) NCI at date of disposal
(less) CA of goodwill at date of disposal
(less) CA of net assets at date of disposal

Group profit/(loss) on disposal

This gain will be included in the discontinued operations on the consolidated SPL

Question 7

How do you calculate the carrying amount of goodwill at date of disposal?

Answer 7

(add) Consideration transferred
(add) NCI at acquisition
————-
(less) 100% net assets at acquisition
————
(add) Goodwill at acquisition
(less) Impairments up to the date of disposal
———–
= Goodwill at date of disposal

Question 8

How do you calculate the carrying amount of net assets at date of disposal?

Answer 8

(add) Net assets b/f
Add Profit/(deduct loss) for current period to disposal date
(less) Dividends paid prior to disposal
------------
= Net assets at date of disposal

Question 9

What are the steps to approaching a CSPL with a disposal?

Answer 9

1. Set up pro formas for CSPL including the new line ‘Profit / loss from discontinued operations’
2. Set up pro formas for profit or loss on disposal calculation
3. Set up pro formas for CSOCE including a new row ‘Eliminated on disposal’
4. Complete the standard workings up to W2 for the subsidiaries held at the year end (as per the normal CSPL technique)
5. Work through the notes and deal with adjustments - watch out for:
   - dividends paid by the sub prior to the disposal
   - easy numbers for the gain/loss on disposal calculation.
6. Once all the notes have been adjusted for, finish off the workings.
   - Remember the NCI working must take its share of the disposed of subsidiary’s profits up to disposal.
7. Complete the CSPL