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In one of the revision kit question, 8% out of 60% in the subsidiary is sold making a gain.
For consolidation purpose, this gain is not recognized.
Solution given:
The gains recorded regarding the investment in Nathan will be follows:
Gain on investment in Nathan ($95m – $90m) $5m
Gain on sale of holding in Nathan ($18 – (8%/60% of $95m)) $5·3m
No gain or loss is recognized in profit or loss on the sale of Nathan in the group accounts as the sale is shown as a movement in equity. Therefore it is eliminated.
Additionally, the gain on the revaluation of the investment in Nathan will also be eliminated on consolidation as the calculation of goodwill will be based on the fair value of the consideration at the date of acquisition and not at the date of the current financial statements.I haven’t understood the treatment, can someone please explain
Hi,
Which bit exaclty do you not understand? Don’t forget that the group accounts are prepared using the concept of substance over legal form, so ant profit made on the sale of the shares ($5m) is eliminated in the group accounts as this is the legal aspect of the transaction, a simple sale of shares.
On consolidation, what has happened is that the percentage ownership has changed, as we still have a subsidiary and will consolidate in the usual fashion but with different percentage ownerships for the group and the NCI. The change in ownership gives a gain of $5.3m.
Please let me know what it is you don’t specifically get and I’ll answer it for you but hopefully for now the above will start to help.
Thanks
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