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Hi, I would like to seek an advice on disposal of subsidiary:
P is holding , S is subsidiary:
If P has fully impaired the cost of investment in Sub S to 0, during the year, it would like to dispose the subsidiary at $2m.
S’s Net assets as follows:
Equity
Share capital 12m
Retained earning (10.5m )
Reserves 0.3 m
Equity 1.8mIn P’s co level, there will have gain on disposal of S for $2m. May I know what is the conso entry in group? Do I need to reverse $2m then compute the gain or loss on disposal of subsidiary in group level. Kindly advice on the consolidation entry.
Meantime, if I waive the debt owing by S $10, Net asset as follows:
Equity
Share capital 12m
Retained earning (0.5m )
Reserves 0.3 m
Equity 11.8mWhat is the gain or loss on disposal of S? May I consult the conso adjustment?
Hi,
Yes the profit on disposal in the individual accounts of the parent is replaced with the group profit or loss on disposal where we are looking at the substance of the transaction and not its legal nature.
In the second scenario the treatment of the disposal is exactly the same as in the first scenario. You calculate a group profit on disposal.
Thanks
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Subsidairy 78% owned :
Total asset= 18m
**Total liability =83m
Total equity= (65)m
Total NCI =(18)m**Total Sub liability include loan payable to the parent of 59m.
Parent books standalone:
Invest = zero (fully impaired)
Loan receviable from sub = 10 ( remaning 49m is impaired “59-10”)
Goodwill = fully impairedQuestion: sub is fully disposed-off with zero sale proceeds.
What will be the gain Or loss in
1- consolidated books?
2- standalone books?Hi,
In the group accounts we use the following calculation based upon the substance:
Proceeds X
Add: FV of investment still held X
Add: NCI X
Less: Net assets (X)
Less: Goodwill (X)
Profit/(loss) on disposal X/(X)In the individual account we compare the proceeds to the carrying value of the investment at the disposal date, based upon the legal form.
Have a go at the calculations and see how you get on.
Thanks
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