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Chapter 7 Consolidated and Separate Financial Statements (IAS 27)
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derecognize all the assets and liabilities of the subsidiary at their carrying amounts at disposal date; recognize the fair value of any proceeds received; recognize any retained investment in the former subsidiary at fair value at disposal date; reclassify to profit or loss or transfer directly to retained earnings any amounts recognized by the subsidiary in other comprehensive income as if the parent has directly disposed of the item; and recognize any resulting gain or loss from the above steps in profit or loss; that is, the proceeds received plus the fair value of any retained interest less the net asset value of the subsidiary, goodwill, and non-controlling interest at disposal date.
TABLE 7.1 Accounting Treatment of Changes in Ownership Interest Change in interest
Effect
Accounting treatment
Financial asset becomes an associate or joint venture
Change in nature of investment. Deemed disposal of previous investment at fair value with gain or loss recognized in profit or loss. The gain or loss is the difference between the carrying amount and fair value of the IAS 39 investment.
IAS 39 is applied until the date that significant influence or joint control is obtained. Gain or loss is recognized in profit or loss.
Control is obtained, i.e., financial asset or associate or joint venture becomes a subsidiary
Change in nature of investment. Deemed disposal of previous investment at fair value with gain or loss recognized in profit or loss. The gain or loss is the difference between the carrying amount and fair value of the financial asset, associate, or joint venture.
IFRS 3 and IAS 27 is applied from the date control is obtained.
Additional interest in an investment with no change in the nature of the investment
No deemed disposal of previous investment. In the case of a subsidiary, the transaction is between equity holders with no effect on profit or loss. In the case of an associate and joint venture, the transaction is treated as an increased investment
Increase the carrying amount of the investment. In the case of a subsidiary, decrease the noncontrolling interest and increase parent equity. Recognize any gain or loss in equity per point 7.4.5 above.
Disposal of interest in subsidiary—no loss in control
Equity transaction.
Increase non-controlling interest and decrease parent equity. Gain or loss on disposal recognized in equity per point 7.4.5 above.
Disposal of a subsidiary where control is lost; i.e., a subsidiary becomes an associate, joint venture, or financial asset
Deemed disposal and derecognition of entire investment and recognition of a new investment at fair value. Gain or loss on disposal and recognition of new investment.
Derecognize goodwill, non-controlling interest, and net assets of subsidiary. Recognize fair value of proceeds received. Recognize retained investment at fair value. Recognize any resulting difference as a gain or loss in profit or loss.
Associate or joint venture becomes a financial asset
Deemed disposal and derecognition of entire investment and recognition of a new investment at fair value. Gain or loss on disposal and recognition of new investment.
Equity accounting or proportionate consolidation ceases. Derecognize carrying amount of entire investment in associate or joint venture. Recognize IAS 39 investment and any proceeds received at fair value. Recognize any resulting gain or loss in profit or loss.
Disposal of a financial asset
No change in the nature of the investment.
Apply requirements of IAS 39.