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13- Disposal and group reorganisations - Coggle Diagram
13- Disposal and group reorganisations
Parent company sells some or all of its shareholding in a group company
Disposal where control is lost
Full disposal
SOPLOCI
Group profit or loss on disposal
Partial disposal
Subs to associate
Substance
The company 'sold' a subs and 'purchased' an associate
Legal form
The company sold some shares
SOPLOCI
Show profit or loss on disposal
Treat as an associate thereafter
SOFP
Remeasure the investment retained to FV at date of disposal
Subs to investment
Substance over form
Substance
The parent has 'sold' a subs. and 'purchased' an investment
Legal
The parent has sold some of its shareholding
SOPLOCI
Show group profit or loss on disposal
Treat as investment in equity instruments thereafter
P/L if FVTPL
OCI if FVTOCI
Show also any dividend income
SOFP
Remeasure the investment retained to FV at date of disposal
Group profit or loss on disposal
FV of consideration received + FV of any investment retained - (Net asset + Goodwill- NCI)
Treatment of amounts previously recognised in OCI
IFRS 10 states that
If a parent loses control of a subs, the parent shall account for all amounts previously recognised in OCI in relation to that subs on the same basis as would be required if the parent had directly disposed of the related assets or liabilities
IAS 28
Same treatment when an entity ceases to have significant influence over an entity
Treatment if the parent had disposed of related assets and liabilities
Items that are reclassified from OCI to P/L
Example: Investment in debt instruments held to collect cash flows and sell where the cash flows are solely the principal and interest
Treatment in group FS on loss of control of subs
Reclassify previous remeasurement gains or losses on the investment in debt instruments from OCI to P/L (as part of the group profit on disposal)
Items that will never be classified to P/L but where a transfer within equity is permitted on disposal
Example: Revaluation surplus on PPE where the parent elects to transfer the revaluation surplus to equity to RE on disposal
Treatment in group FS on loss of control of subs
Reclassify revaluation surplus to RE (this is purely a consolidated SOFP adjustment and will have no impact on the group profit or loss on disposal)
Accounting treatment in parent's separate financial statement
Follows the legal form of the transaction that is shares have been sold. Therefore the treatment in parent's separate FS is the same whether or not control is lost
Income tax is normally payable by reference to the gain in the parent's separate FS
Investment in subs. are held at cost or FV under IFRS 9
The P/L on disposal is diff. from the group profit or loss on disposal
FV of consideration received - CA of investment disposed of
Disposal where control is retained
There is a decrease in the parent's shareholding in an existing subs through the sale of shares
Known as a decrease in a controlling interest
Accounting treatment is driven by substance over form
In substance
No disposal because the entity is still a subs
No profit on disposal should be recognised
Transaction between equity holders of the group
It is recorded in equity as follows
Increase NCI in CSOFP
Recognised the diff. between the consideration received and the increase in NCI as an adjustment to equity (post to parent's column in the CRE)
Accounting treatment
SOPLOCI
Time apportion NCI based on % before and after acquisition
SOFP
NCI
Calculate as normal + increase in NCI
Adjustment to equity
FV of consideration received - Increase in NCI
Deemed disposal
When a subs. issue new shares and the parent does not take up all its rights such that its holding is reduced
In substance, this is a disposal and is therefore accounted for as such
The % owned by the parent before and after issues shares must be calculated and where control is lost, group profit or loss on disposal must be calculated
Associate
Significant influence lost
SOPLOCI
Group profit or loss on disposal
Show FV changes (and any div income thereafter)
SOFP
Remeasure the investment remaining to FV at the date of disposal
Investment in equity instrument IFRS 9 thereafter
Group profit or loss on disposal
FV of consideration received + FV of any investment retained - (Cost of associate + share of associate's post acquisition reserves - Impairment of investment in associate)