Step acquisition

Hi

Example: At 31st Dec, an entity A owns 10% equity shares of company B. Entity A carries the investment in A at $15,000 with gain in other comprehensive income of $5,000.

At 1st Jan A acquires 45% of B, making its holding in B 55%. A also got 50%+ voting rights which gave A control over B and thus B is A’s subsidiary from 1st Jan onwards.

A would fair value its existing holding in B at 1st Jan and recognize the gain / loss in P&L. Furthermore, A would reclassify the balance in other comprehensive income $5,000 to P&L.

The treatment of previously held equity interest is stated under IFRS 3 para 42, as follows:
“In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss or other comprehensive income, as appropriate. In prior reporting periods, the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest.”

Hope this helps!