IAS 27- Seperate Financial DIsclosures

Question 1

Q.37-Discuss and demonstrate how the disposal of a 45% interest and the retained
interest of 15% in Martlett Co should be accounted for in the separate financial
statements of Sitka Co at the date of disposal in accordance with FRS 102. (8 marks)

Answer 1

• IAS 27 Separate Financial Statements:
  
  • Requirements for accounting investments in subsidiaries, joint ventures, and associates
  • Options: at cost, IFRS 9, equity method (IAS 28)
• Marlett Co’s Status After Partial Disposal:
  
  • No longer subsidiary, joint venture, or associate
  • Classified as investment in equity instrument
• Accounting Treatment Using IFRS 9:
  
  • Investments in equity instruments measured at fair value
  • Irrevocable election at initial recognition for subsequent changes in fair value in OCI
• IAS 28 Guidelines for Transaction Discontinuation:
  
  • Equity method discontinued when investment ceases to be associate or joint venture
  • Recognition of profit or loss on retained interest
• Profit Calculation for Sitka Co:
  
  • $(Fair value of retained interest + Proceeds) - Carrying amount of investment
• Resulting Profit for Sitka Co:
  
  • $(10 + 3.5 - 12) million = $1.5 million
• Treatment of OCI for Sitka Co:
  
  • Present subsequent changes in fair value in OCI after initial recognition
• Definition of Income or Expenses:
  
  • Change in measurement basis of retained interest when losing control of investee
  • Meets definition in Conceptual Framework for Financial Reporting (2018)