Chapter 19 Group Accounts: disposal of subsidiaries

Question 1

1.1 Disposal in parent’s financial statements

Answer 1

Disposing of a whole subsidiary meets the definition of a discontinued operation in accordance with IFRS 5 and must be presented as such.
- Statement of financial position: at the year-end no shares are held and therefore the disposed of subsidiary is not represented in the group statement of financial position
- Statement of profit or loss: 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 date of disposal and gain/(loss) on disposal
- Statement of changes in equity: eliminate the non-controlling interest in the subsidiary that has been disposed of
Gain on disposal calculated as:
- Sale proceeds X
- Less: carrying amount of goodwill at date of disposal (X)
- Less: carrying amount of net assets at date of disposal (X)
- Add back: NCI at date of disposal X
- Group profit/(loss) on disposal X/(X)
This gain will be included in the discontinued operations on the consolidated P+L
Carrying amount of goodwill at date of disposal is calculated as:
- Consideration transferred X
- NCI at acquisition X
- Less: 100% net assets at acquisition (X)
- Goodwill at acquisition X
- Less impairments to date of disposal (X)
- Goodwill at date of disposal X
Carrying amount of net assets at date of disposal:
- Net assets b/f X
- Profit/(loss) for current period to disposal date X/(X)
- Dividends paid prior of disposal (X)
- Net assets at date of disposal X
Consolidated statement of changes in equity – we need to eliminate the non-controlling interest in the subsidiary that has been disposed of:
- B/f X
- NCI% of profit for period X
- NCI% of dividends (X)
- Eliminated on disposal (NCI calculated as normal under the FV or proportionate approach) (X)
- C/f X