Week 7 - Group Accounting: IFRS10 Control & Disposals Flashcards
De Facto control
Control even if you have less than 50%
e.g. if past voting rights suggest the remaining investors rarely votes, you could say this is de facto control
Joint Control
the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing control. We call entities
under joint control joint ventures.
Business arrangements:
Joint Control: Decisions require unanimous agreement between the equal shared partners
Associate 20-50% ownership
Subsidiary: >50% ownership
Investment: <20% ownership
Structured Entities
If control exists, even if <50%, then need to consolidate whole asset as if its a subsidiary.
If there is a significant influence it should be accounted for as an associate
Accounting for disposal:
SoFP
the disposed subsidiary is not consolidated:
o remove goodwill related to the subsidiary
o remove NCI related to the subsidiary
o do not consolidate the assets and liabilities of the subsidiar
Accounting for disposal:
Income Statement
consolidate the results of the subsidiary up to the date of disposal
* report NCI of the subsidiary up to the date of disposal
* show the group profit or loss on disposal of the subsidiary (in Income Statement)
Full Disposal: Group Profit or Loss
MUST LEARN
Calculating group profit(loss) on disposal of a subsidiary (important to learn)
Fair value of proceeds received X
Less: Group share of consolidated carrying value of subsidiary at date of disposal
Carrying value of net assets at date of disposal X
Goodwill at date of disposal X
Less: non-controlling interests at date of disposal (X)
(X)
Group profit (loss) on disposal (Consolidated I/S) X/(X)
Show profit/loss in IS below operating profit
EXAMPLE ON PHOTOS 31/10/24
Disposal in parent co’s individual statements
Proceeds: £3,100
Carrying Value of Investment: (£2,500)
Profit on disposal: £600
Calculating group profit(loss)on disposal of an associate
Fair value of proceeds received X
Less: Investment in associate as at disposal date (X)
Group profit (loss) on disposal (I/S) X/(X)
Report this profit in the income statement section of the consolidated statement of
comprehensive income.
Example photos 31/10/24
Calculating group profit(loss)on disposal of an associate
EXAMPLE
Mello Group acquired 40% of Yello Ltd on 30 March 20X3 for £700,000 obtaining significant
influence. The reserves of Yello Ltd were £950,000 on this date. The group financial
statements have a 31 December year end.
On 30 September 20X8 Mello Group disposed of its entire holding in Yello Ltd for
£1,800,000 when the reserves of Yello Ltd stood at £2,100,000.
In Mello Ltd’s individual financial statements the investment in Yello Ltd had been carried at
fair value through profit and loss and stood at £1,200,000 as at the previous year end.
Required
a) Calculate the group profit/loss on disposal arising from the disposal of Yello Ltd as
reported in the Mello Group Consolidated Statement of Comprehensive Income for
the year to 31 December 20X8.
b) Summarise the impact of the disposal on the consolidated financial statements of
Mello Group for the year to 31 December 20X8
c) Calculate the profit/loss on disposal that would be reported in parent company Mello
Ltd’s individual financial statements for the year to 31 December 20X8.
a) Fair value of proceeds received: £1,800
Less: investment in associate at disposal date
Cost of investment: £700
Group share of post acquisition reserves: £460 (2,100-950) x 40%
= (1,160)
Group Profit on disposal: £640
b) CSoFP No investment in associate
CSoCI: 9/12 share of profits of associate
Group profit on disposal of £640k
c) Proceeds £1,800
Carrying value of investment at 1/7/X7 (1,200)
Profit on disposal: £600
Full Disposal: Group Profit or Loss
EXAMPLE
Greenie Group acquired 70% of Meanie Ltd on 30 March 20X2 for £900,000. Goodwill was
calculated at £750,000 at acquisition and cumulative goodwill impairments of £150,000 have been accounted for to date. The group financial statements have a 31 December year end.
On 1 July 20X7 Greenie Group disposed of its entire holding in Meanie Ltd for £3,100,000.
Immediately before the disposal, the carrying amount of the net assets of Meanie Ltd
consolidated were £2,300,000 and a non-controlling interest of £800,000 was reported. In Greenie Ltd’s individual financial statements the investment in Meanie Ltd had been carried at fair value through OCI and stood at £2,500,000 as at the previous year end
Typical fatures of structured entity
Activities not directed using voting rights, directed by a contract
Activities are restrited, narrow objective
Financial support - e.g. parent guarantees loan/losses
