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Disposal of subsiduary

Former userFormer user15y ago
Proforma for disposal of subsiduary in BPP Study textbook is the following
Fair value of consideration received...................X
Fair value of investment retained......................X

Less
Net assets at date of disposal %................(X)
Goodwill..............................................(X)
Gain/Loss...............................................X
The question is
In Q1 of December 2009 , the following information is given
On 30 June 2008, Grange had acquired a 100% interest in Sitin, a public limited company, for a cash consideration
of $39 million. Sitin’s identifi able net assets were fair valued at $32 million.
On 30 November 2009, Grange disposed of 60% of the equity of Sitin when its identifi able net assets were
$36 million. Of the increase in net assets, $3 million had been reported in profi t or loss and $1 million had been
reported in comprehensive income as profi t on an available-for-sale asset. The sale proceeds were $23 million
and the remaining equity interest was fair valued at $13 million. Grange could still exert signifi cant infl uence after
the disposal of the interest. The only accounting entry made in Grange’s fi nancial statements was to increase cash
and reduce the cost of the investment in Sitin.

In answers net assets at date of disposal is taken for 100 % instead of 60 %, is it the right solution?? If yes in which cases we should take 100% of net assets and in which case only our share?
Thanx
MikeLittleMikeLittleTutor15y ago#1
Yes, it is correct. If you look at the start of your workings, you'll see the amount received for 60% plus the fair value of the remaining 40%. Therefore, you have the "value" of 100% and that's why you now compare with 100% of the value of the subsidiary.

The situations where you only look at the 5age disposed of is when we are not selling a subsidiary ( as we are in this case - selling it down to become an associate ). So, for example, if we were selling a quarter of our 80% holding, we still have a 60% subsidiary. when calculating "adjustment to parent's equity" we consider one quarter of the goodwill disposed of and 20% of the value of the assets at date of disposal
Former userFormer user15y ago#2
Thanx,
but on BPP study textbook chapter 14 changes in group structures, page 335 they have taken only share of the parent, not 100 %
MikeLittleMikeLittleTutor15y ago#3
Are you sure this is not a part disposal where we are still left with a subsidiary?
Former userFormer user15y ago#4
Here what is written in the book "Partial disposal: subsiduary to associate (80% - 40%)", I think by saying partial here, they mean not full disposal, like subsiduary to nothing.
MikeLittleMikeLittleTutor15y ago#5
take the value of the disposal + the value of the remaining holding. Compare with 80% of the total fair valued assets at date of disposal and that should give you profit. take off the whole of our goodwill and that gives you net profit on disposal of subsidiary. In addition, it gives you value of associate as at the date it became an associate
Former userFormer user15y ago#6
for example company A owns 70 % shares of company B, than it sells 50 % for a cash 300,000, and fair value of associate or AFSF is supposed to be 50,000.
We got 300,000 cash for 50 % and fair value of investment retained is 20 %, therefore while calculating group's gain we shoud do following
Cash received 300,000
Investment retained 50,000
less 70% of net assets not 100 %
less goodwill

Have I understood right???
Kkarimsellim15y ago#7
kindly i want to ask
Is the net assets of the disposed subsidiary that i must include in the proforma for calculation the group disposal gain or loss from the subsidiary disposal,is is

Net assets of the subsidiary at disposal date? OR

(Net assets of the subsidiary at disposal date)*(Parent's share portion % in the subsidiary before the disposal)?
Kkarimsellim15y ago#8
Is the above proforma right?
MikeLittleMikeLittleTutor15y ago#9
Hi Gagik

yes, the proforma appears to be correct - why not check it against the proforma in the course notes. Were I not up to my ears in replying to OT questions, I would look it up myself!

Karim, it's "net assets * parent's share"
Former userFormer user15y ago#10
Hi Mike
I think I have already understood, I have once more watched your lectures(by the way great lectures) and now everything is OK,
thanx a lot
Former userFormer user15y ago#11
Dear Mike,
could you please clarify in case of disposal of subsidiary without loss of control proforma is as follows:
1) Sales proceeds X
Share of net assets disposed of: (x)
or
2) Sales proceeds X
Share of net assets + goodwill disposed of: (x)
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