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Hello dear tutor…
Hope that you are well
Q:A(parrent) has control on B(buy 70% of its shares).@ the year end the total effect of changes in exchange rate for B’s assets is $5m.so:
D:asset 5
C:forex reserves 3.5
CNCI 1.5A)If Parrent company dispose all of its shares in subsidiary then it must realise the forex reserves ie:
D:Forex reserves 3.5
C:sopl 3.5B)what if the parent company dispose only 10% of its shares(ie reduce its investment portion from 70% to 60%)?
Is it correct to say:
D:forex reserves 0.5(3.5*10/70)
C:sopl 0.5Or we should do this?
D:forex reserves 0.5
C:NCI 0.5Please tell me the logic behind the correct answer if the second one is correct(crediting NCI)…
Thank you
Hi,
Good question. The key to remember is that we’re looking at the group accounts so looking at everything from a group perspective (substance over legal form).
If we are disposing of the 10% then we still have control and this is treated as a transfer between owners. The fx gains have not therefore been realised outside the group and so it is also just treated as a transfer between owners, so I’d therefore take the entry NCI,
Hope this helps. Not too sure if this has been seen in and P2 paper to date, so don’t stress about it too much.
Thanks
Thank you for your reply
So you mean that the parrent company should realize the amount of unrecognised forex reserves(transfer it from OCI to sopl) when it loses the control…
And we should transfer share of unrecognised forex reserves to the nci as we have control on the subsidiary(treat as a transfer between owners)…I mean the key point is CONTROL…
Realize it when you lose your control…
You’re welcome.
Yes, the key is always control as that is when the accounting treatment changes when we no longer have control in that we no longer consolidate.
Keep up the hard work.
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