if the parent company who own full control over the subsidiary and during the year the BOD take a decision to put the subsidiary under liquidation, is the parent company consolidate the subsidiary or stop consolidate it? Thanks! Thanks. 10. + free IFRS mini-course. they are negative. well, I quoted the full entry somewhere up in the comments, please let me copy it: If the parent retains control even after the sale, the sale has no gain or loss implications and any difference between the cash inflows and adjusted value of investment is recognized in equity. What I’ve understood after consultations with my colleagues, as we use “predecessor valuation method”, we simply do the same, – write-off all assets, liabilities and equity of Daughter, without any P&L effect. Changes in NCI share needs to be calculated and accounted for, therefore; Profit on disposal——————————$ 24,000 (36,000*8/12), NCI before disposal——————————–428,000*10%= 42,800, NCI after disposal———————————-428,000*20%=85,600, Dr. Here I would like to show you how. (2) Revenue recognised up to 30 September must also be de-recognised? If the disposed subsidiary is not a separate major line of business, then it it does not meet IFRS 5, and should not be presented separately as discontinued operation in the financial statement. Less: Net assets (X) Since the asset had a net book value of 3,000 the profit on disposal is calculated as follows. But of course, in this case, the non-controlling interest and other calculations will look differently and you can learn more about consolidating special purpose entity here. S. Thanks, that is quite helpful. Cr. Cr. Consolidate Sub until date of disposal (i.e. how we account for the subsidiary under liquidation? Debit Cash received: 180 000 Let me illustrate it all on a very simple example. Available-for-sale Financial Asset to Subsidiary. Does the gain on bargain purchase have any impact on the consolidated profit / loss on disposal of subsidiary? What happens if parent sold 100% owned sub to 3rd party in whole, should I include sub’s profit and loss until disposal to the Consolidation? Dr Bank +180 000 If my financial statements are standalone after disposal, how do I show comparatives ? S. Hello silvia thanks for explanation. Thank you very much for your help, Hi Silvia, this has been extremely helpful as I’m quite rusty on these concepts, thank you. Comparatives are not restated. ADVERTISEMENTS: Read this article to learn about the transactions relating to investment account with its treatment. or it will be two different transaction in Joint venture “A” and “B”‘s books? How to do SOFP and SOCI with double entries in parent and subsidiary stand alone accounts. and what is the reference from IFRS? Thank you for this, it was really enlightening! Or book a demo to see this product in action. Copyright © 2009-2020 Simlogic, s.r.o. In subsidiary’s accounts – if a subsidiary is under liquidation, then I guess going concern does not apply and you should read this article. Need help? If the disposal is mid of the year then NCI and Net Assets need to be calculated till the date of disposal. Asset impairment accounting affects asset reduction in the balance sheet and impairment loss recognition in the income statement.Please note that goodwill and some tangible assets are required to make an annual impairment test. It really can happen that a parent loses control without selling one piece of shares. plus 20 shares issued as onus shares . I can’t find much on branch reporting anywhere. Disposal of fixed assets is accounted for by removing cost of the asset and any related accumulated depreciation and accumulated impairment losses from balance sheet, recording receipt of cash and recognizing any resulting gain or loss in income statement.. A company may need to de-recognize a fixed asset either upon sale of the asset to another party or when the asset is no longer … The controlling company, also called the parent company, is said to have a controlling interest in the subsidiary. – Statement of financial position [this will not be referred as consolidated since as at 31 Dec 2019 you do not own any subsidiary?] Acquisitions and disposals of subsidiaries Page | 7 Disposal of subsidiaries Where control is lost This scenario arises where either a parent disposes of all of its shares in its subsidiary, or a parent disposes of some of its shares such that it no longer has a controlling holding (for example from 80% down to 40%). Maybe I should mention it up there. As for it is about separate financial statements , it is correct to record gain of CU 10…. The disposal of assets involves eliminating assets from the accounting records.This is needed to completely remove all traces of an asset from the balance sheet (known as derecognition).An asset disposal may require the recording of a gain or loss on the transaction in the reporting period when the disposal occurs. Will it amount to double accounting of gain in consolidated financials when we compute gain on loss of control in consolidated financial statements (group books ). Less: Goodwill Hope you can provide assistance. Thanks. These types of entries are made in accrual based accounting based on the revenue recognition principle. Should we write-off only the delta (i.e. That is very clear. Cr Investment in Baby -100 000 But you had a great point . In this circumstance, the parent company needs to report its subsidia… Before we actually prepare this statement, we need to make two more calculations: Let’s start with Group’s retained earnings at the beginning of the reporting period (1 January 20X6). Are you saying that Y issued new share capital and sold them to the third parties? Congratulations, that’s great Thank you for your kind words! How about going through the above comments and searching for the answer first? Believe me, people make most mistakes by messing up with pluses and minuses – simple as that. The submitter asks how Entity X de­ter­mines the cost of its in­vest­ment in the investee on the date it obtains control of Entity Y. Parent prepares individual accounts for each entity as well as the Group Consolidated Accounts. What if company decides to convert its subsidiaries to branches? However, what about eliminations? The numbers for total comprehensive income for the year, CU 79 136 for retained earnings attributable to Group and CU 1 474 of non-controlling interest, come from the consolidated statement of profit or loss above (look last column at the bottom, you have a split there). 10% of holding was disposed off on 31 August 2008 for $ 70,000. In other words, we will start with the numbers as of 31 December 20X6 and go back to 1 January 20X6: We also need to calculate non-controlling interest at 1 January 20X6: If you want all these schemes in Excel file, it is available in the IFRS Kit. Which IFRSs are applicable? Include profit/loss on disposal 2. Consolidated worksheet adjusting entries Eliminating parent’s investment against equity acquired in subsidiary • Dr Subsidiary’s total equity balance at acquisition date • Cr Parent’s investment in subsidiary o E.g. 100 shares bought at Rs, 10 since inception 2. Thank you! $200K) in the Parent. Dear Silvia, I have a question. NEW: Online Workshops – US GAAP, IFRS and other, you can learn the basic steps and methodology of consolidation with a nice video, various scenarios of how the group can change, IFRS 10 Consolidated Financial Statements for guidance, consolidating special purpose entity here, http://archive.ifrs.org/Use-around-the-world/Education/Documents/Framework-based%20teaching%20materials/Acquisitive-case-study-2015-final.pdf, going concern does not apply and you should read this article, IFRS 5 as the liquidating subsidiary is a discountinued operation, I cover similar topic of deemed disposal of an associate here. In accounting adjustment entries are made in the journal at the end of the accounting period. Subsequent to this, the subsidiary company prepared accounts to 30 April 2016, which showed all assets/liabilities had been stripped out, leaving solely the £100 issued share capital. But, if your starting point is consolidated balance sheet, then you must derecognize all Baby’s assets and liabilities (=net assets), all goodwill and all non-controlling interest left. So you have R60 240 going through the P/L for group gain which ultimately goes to retained earnings on the consolidated financial position right? great question. Less Baby’s profit for the year 20X6 (per question): -CU 7 370, It gives us Baby’s retained earnings at 1 January 20X6 (36 700-12 000-7 370): CU 17 330, Thereof Group’s share of 80%: 80%*17 330 = 13 864, NCI at acquisition (see goodwill calculation above): CU 18 400. Thank you for your great explanation, Hello Silvia, Thank you for the detailed example. As for consolidated accounts – the parent consolidates until it loses control over subsidiary (thus I guess until subsidiary is fully liquidated). Hi Yan, not much information here. My entity, Parent, is 100% subsidiary of GrandParent. How should we account for this case? Goodwill recognized prior disposal is original goodwill less any impairment to date. This article still applies and you can learn the basic steps and methodology of consolidation with a nice video in it. There was a question on this in ACCA Dip IFRS June 2018 exam for the first time.. Add NCI’s share on post-acquisition retained earnings of Baby: CU 3 466, calculated as: Baby’s retained earnings at 1 January 20X6: CU 17 330 (calculated above at consolidated retained earnings at 1 January 20X6), Apply NCI’s share of 20%: 20%*17 330 = 3 466. Credit Baby’s net assets: 116 700 (to derecognize them fully; of course, you need to go item by item – Debit Baby’s liabilities, Credit Baby’s PPE… you get the point I hope) Could you explain why? Entry:    Dr. Government, Semi-government, Corporation or Trust Securities, such as Shares, Bonds, Debentures, etc. Cash (debit) 3,000 Investment in ABC (credit) 3,000. There is an investment in sub recorded on the parents books, and the subsidiary has a nominal net asset value. Dividends paid must be deducted in calculating Net Assets. The entry is shown next. The balaces of equity accounts at the year-end are only those of Mommy, because Baby is gone. Hi, would you please also show the journal entry in consolidation level to record the total gain on disposal CU 60 240? report "Top 7 IFRS Mistakes" + free IFRS mini-course. The only thing I do not understand is what is the journal entry to recognise the group gain on consolidation? The Committee received a sub­mis­sion about the accounting in an entity's (Entity X) separate financial state­ments for a step ac­qui­si­tion of a sub­sidiary (i.e. Hi Silvia, If a fully owned subsidiary is recorded at CU 100 and separate goodwill of CU 20; we sell 20% stake at a price of CU 30 (gain of CU 10). will the proportionate goodwill be de-recognized and charged to P&L? The parent company is turning the subsidiary's operations over to the subsidiary's management for no consideration. However, we have already made the below entry in parent’s book. Equity             xxx. Journal In this example, credit your goodwill account by $2 million. Add non-controlling interest at acquisition, calculated as: Baby’s share capital at acquisition: CU 80 000, Add Baby’s retained earnings at acquisition (per question): CU 12 000, Total of Baby’s net assets at acquisition: CU 92 000, Less Baby’s net assets at acquisition (calculated in the above point): – CU 92 000. In October’2019, Daughter was sold to GrandParent. Debit Non-controlling interest on disposal: 23 340 (to derecognize it fully) However, let’s keep it simple here and focus on the full sale of shares with loss of control. By using above calculation method two types of gain; realized gain and holding gain are accounted for. proceeds from the disposal) in investing part. Thank you! I got the answer from your above comments. NCI———————————————-$ 42,800 (as above), Cr. Where can one find the source theory for this type of example? So that’s important that you do that exercise as well. In this article, I described various scenarios of how the group can change, so please check that out, it will give you more insights on how to assess the situation and decide what to do. under licence during the term and subject to the conditions contained therein. In this particular example, we aggregated the amounts of Mommy and Baby in full, because the subsidiary was disposed of at the end of the reporting period and therefore all revenues and expenses during the full year belong to the Group. Following treatments are applicable depending on type of disposal; Difference of net proceeds received to changes in Non Controlling Interest (NCI) is debited / credited to shareholder’s equity. Hi Arthur, yes you do – until the moment of losing control, you need to consolidate fully (including profit or loss of subsidiary). Consolidated profit or loss statement is not that easy as consolidated statement of financial position, because this statement is NOT a picture at the certain date, but the REPORT about events during certain period. miss Silivia, this is helpful. Many of my readers then asked me for a different situation: How to actually stop consolidation, or deconsolidate, when a parent sells its share in a subsidiary? 3 years ago when Baby’s retained earnings were CU 12 000. Perhaps if you could send me the jnl entries for the R60 240 group gain recognition that would be helpful…. Really desperate for some help and would really appreciate it. So first, let’s calculate goodwill at acquisition (which happens to be the same as the goodwill on disposal, since no impairment has been charged so far): Now, we can calculate Group’s gain in the consolidated financial statements: Once you have all these calculations, then you should prepare the consolidated statement of profit or loss in three steps: Our consolidated statement of profit or loss is here: Notes: Numbers in „Combine“ column were calculated as sum of „Mommy Corp“ column and „Baby Ltd“ column. Less: Net asset value The impairment test is required when there are some indications or reasonable assumption that the recoverable amount of an asset declines rapidly. Sold full 80 % -share for CU 180 000 as of 31 December 20X6 for 4,500 equity.. Nci———————————————- $ 42,800 ( as above ), Cr so on 31 August 2008 for 5. Bargain purchase have any impact on the sale the cash should be the accounting! 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