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Hi
In Marchant (June 2014) the below note appears in question 1
2. Marchant disposed of an 8% equity interest in Nathan on 30 April 2014 for a cash consideration of $18 million
and had accounted for the gain or loss in other income. The carrying value of the net assets of Nathan at
30 April 2014 was $120 million before any adjustments on consolidation. Marchant accounts for investments
in subsidiaries using IFRS 9 Financial Instruments and has made an election to show gains and losses in other
comprehensive income. The carrying value of the investment in Nathan was $90 million at 30 April 2013 and
$95 million at 30 April 2014 before the disposal of the equity interestIn the solution the gain on disposal is eliminated because the change in equity held does not reduce the holding below a subsidiary, I understand that bit fine. However the gain prior to the disposal of 90-95=5 million is also eliminated in the solution. The explanation given is below.
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 don’t understand this. Could you please explain why we are eliminating this?
Thanks for your help
I think the proper calculation of the “gain” would be 8%/60% x 95m = 12.66( the value of the share that going to dispose)
18-12.66 = 5.33 m
It was included in OCI , but the fact that Nathan still the subsidiary of Marchant, i think , it is merely an equity movement, so it must deducted from OCI
Compare with the other Sub, (i forgot what name ) , the 22m is recognize because the Subsidiary ceased to become one , and become associate if i remember
Still hope the Tutor clarify this
Hi,
I’d ignore the explanation in the answer and go back to the basics on consolidation. We’re preparing the group accounts for a single entity, so in the group SFP we will eliminate any investment in the subsidiary and replace it with the net assets of the subsidiary on a line by line basis.
In the group SPLOCI we follow the same principal. If we have eliminated the investment then we will also need to remove any gain on the investment too. As the gain of $5 million has been shown in other comprehensive income then we remove it from there.
Hope this helps. It’s a pretty straight forward mark to get, provided you know about it’s existence!
Thanks
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