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When calculating the group profit after a disposal the formula given by BPP is:
Consideration received plus
FV of the in retained
less %net asset hold at date control lost and goodwill (except any NCI goodwill)
add/less gain/losses previously recognised in OCI (IEI inst)This last part with gain and losses in OCI I do not understand (it’s driven mye isane!).
The gain from IEI (show in OCI) is not already recognised so included in the net assets at the disposal date- why added again?? it’s look ‘to me like it’s a double counting of this gain??
Please clarify..I am making a mistake but I do not understand where!!
Thank you!
Hi Libratype
I’m terribly sorry but I don’t recognise the abbreviation IEI 🙁
Nor do I see the adjustment – I would need to have access to the BPP kit before I could comment ….. and I don’t have it
Ok I will try to be more specific.
IEI= Investment in equity instrument
Past exam paper (December 2009)Disposal 60% of a wholly owned subsisdiary. (become an associate)
Proceedds from disposal 23 mil.
Goodwill in disposed sub. 7 mil
FV of the remaining equity 13 mil.
Net assets at disposal 36$ compared with FV of NA at the acquistion of 32 mil. From this 4 mil increase 3 are reported in Profit or lost and 1 is reported in other comprehensive income.I do not understand why 1 mil from other comprehensive income adjust the loss on disoposal?? What is the difference that 3 mil were reported in P/L and 1 in OCI?? Aren’t all the 4 mil. part of the net assets of the subs??
If all the 4 mil would have been reported in P/L the loss would have be 7, but with this million reported in other comprehensive income the loss is 6?Thank you.
The solution in exam paper is below.Fair value of consideration 23
Fair value of residual interest 13
Gain reported in comprehensive income 1
––––––––
less net assets and goodwill derecognised
net assets (36 )
goodwill (7 )
––––––––
Loss on disposal (6 )I vaguely remember something about an adjustment having to be made in respect of a previously recognised gain taken through OCI but I can’t visualise it where I am right now ( airport cafe )
Does a study text not explain it for you?
No, Mr. Little.
It’s not a logical explanation in BPP study text- just the formula.In december 2009 1st problem part a requires exactly this to calculate gain loss on disposal of a sub.
The matter come up also in anotther past exam question where there is also a gain previously recognised in OCI (in a disposed subsidiary which become a associate) and this previously recongised gain is increasing the profit group has made on disposal.
When you have time maybe you can help me to sort out this issue: what is the difference if a disposed subsidiary had a gain/loss recognised in OCI when the profit.loss on disposal is calculated? Per past exam questions and BPP (no explained formula) this previously recognised gain is adjusting the profit/loss on disposal.
Thank you! Have a nice flight!
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