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Hi
Could I ask, generally speaking if a co sells shares, is it true to say the profit on disposal in the co’s own FS is the proceeds less the FV of the shares at the last year end, not the proceeds less the original cost of the shares?It will be proceeds less carrying amount (cost or fair value). If carried at FV at prior y/e the difference between FV and cost has already been recognised.
Thanks. But doesn’t the carrying amount always have to be FV for an equity investment asset under IFRS9?
You are correct. (Under IFRS 9 equity investments will be said to be measured at FV even if it is cost that is taken to be the best estimate of FV.)
In the December 13 paper (Stow group question) there is a disposal of a sub and the answer says there is a risk that the profit on disposal in the parent FS is calculated wrongly – it should be proceeds less cost of investment. This is technically incorrect then?
You have to take care looking at “old” Qs – which is why we recommend investing in an up-to-date ACCA Approved revision kit in which past Qs must be updated. Under IAS 39 there was a cost option. When this was removed from IFRS 9 would not have been examinable in 2013.
Could I also ask-
Say a company acquires a subsidiary (a 70% holding) and it pays more than the actual value of the shares, in order to also get control. In the co’s own individual FS at the next year end it would normally look at the current value on the stock exchange for it’s various equity investments, in order to revalue them to fair value. But when you have more than 50% of the shares and also have control, then presumably the fair value is more than the actual current value of the shares, because there is also control. So how does a co go about revaluing its equity investments at each year end (which are subsidiaries) in its own individual FS?The issue of “unit of account” came up in the post-implementation review (PIR) of IFRS 9 and again in the PIR of IFRS 13 (where it was referred to as the PxQ issue). Since a quoted price is a level 1 input, FV would be share price x # of shares held WITHOUT adjustment (e.g. for a control premium) in accordance with IFRS 13.
So a level 1 input (which is the most objective) takes priority over “unit of account” arguments for any adjustment (which would be subjective).
Interesting, thanks again. Could I also ask! –
In June 2010 Vegas question the co has invested in two associates during the year which are in quite different businesses than the parent. The answer says that there is a risk that because both the group finance team and the group auditor are not familiar with these businesses and the related accounting issues and there may be accounting errors as a result eg the deferral of revenue for a travel agent. Why would a group finance team have to prepare the FS for an associate? And how much are group auditors normally involved in the audit of an associate as compared to the audit of a subsidiary?And finally! In March June 2017 question 1 the question says that the group has more than 15 associates but there’s no “investments in associates” in the group SFP and no mention in the answer?
No problem to ask new Qs – but could you please make them new posts?
Re Vegas – I am not familiar with this Q (no longer on ACCA’s www) but it sounds rather far-fetched to me. Unless the group auditor is auditor of the associate, they will only be concerned that the associate has been included in the consolidated FS at cost + P’s share of post-acquisition profits. The auditor of the associate should know how revenue is accounted for – otherwise they shouldn’t be the auditor(!) and since IFRS 15 there is a lot more guidance on how deferred income should be accounted for in any business.
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