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Hi Mike,
I’ve read through IAS 28 on the IASPLUS website and am confused by these two sentences:
Changes in ownership interest:
“If an entity’s interest in the associate is reduced, but the equity method is continued to be applied, the entity reclassifies to profit or loss the proportion of the gain or loss previously recognized in Other comprehensive income relative to that reduction in ownership interest”What does this mean? If an investor’s holding in an associate falls from 40% to 30%, how should I account for the associate in the investor’s SOPL and SOFP?
Second sentence:
Intra- group transactions:
“Unrealized losses are not eliminated to the extent that the transaction provides evidences of a reduction in the net realisable value or in the recoverable amount of the assets transferred”Referring to the sentence above, if I say at the start of the year the parent sells an asset with a carrying amount of $500 to its associate for $400 which the associate still holds by the end of the year, how should I account for this unrealized loss? (Say the asset has a recoverable amount of $450 at the end of the year) should I recognize an unrealized loss of only $50 as well as the necessary depreciation adjustment?
First question – disposal of part interest in an associate … not in your syllabus
Even the part disposal of a subsidiary is not in your syllabus
Here’s the relevant extract from your F7 syllabus …
“Explain and illustrate the effect of the disposal of a parent’s investment in a subsidiary in the parent’s individual financial statements and/or those of the group (restricted to disposals of the parent’s entire investment in the subsidiary).”
Here is paragraph 22 of IAS 28 …
…”Profits and losses resulting from ‘upstream’ and ‘downstream’ transactions between an investor (including its consolidated subsidiaries) and an associate are recognised in the investor’s financial statements only to the extent of unrelated investors’ interests in the associate. ‘Upstream’ transactions are, for example, sales of assets from an associate to the investor. ‘Downstream’ transactions are, for example, sales of assets from the investor to an associate. The investor’s share in the associate’s profits and losses resulting from these transactions is eliminated.”
I don’t understand the IASPLUS comment
Alright, guess I shouldn’t have read that, thank you for the help as always 🙂
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