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Q Grange: Disposal of subsidiary (Sitin)

Forums › ACCA Forums › ACCA SBR Strategic Business Reporting Forums › Q Grange: Disposal of subsidiary (Sitin)

  • This topic has 2 replies, 3 voices, and was last updated 10 years ago by fidget.
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  • June 4, 2015 at 11:57 pm #253425
    umais41
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Grange has disposed of 60% of Sitin which means Sitin is an Associate at the year end 30 November 20X9. If it is no longer a subsidiary then why are its retained earnings and other components of equity are included in the calculation of consolidated reserves?
    Grange (parent) has recorded the investment in Sitin at $16m at the year end but the fair value of this investment is $13m. Then why isn’t the difference of 16-13= 3m(loss) not recorded in the consolidated retained earnings?

    June 8, 2015 at 3:06 pm #255119
    MrMorpheus
    Member
    • Topics: 1
    • Replies: 29
    • ☆

    the share of associate profit is included in the group reserves
    the impaiment loss…i don’t understand why it isn’t

    June 16, 2015 at 11:47 am #257266
    fidget
    Member
    • Topics: 8
    • Replies: 207
    • ☆☆☆

    It

    @umais41 said:
    Grange has disposed of 60% of Sitin which means Sitin is an Associate at the year end 30 November 20X9. If it is no longer a subsidiary then why are its retained earnings and other components of equity are included in the calculation of consolidated reserves?
    Grange (parent) has recorded the investment in Sitin at $16m at the year end but the fair value of this investment is $13m. Then why isn’t the difference of 16-13= 3m(loss) not recorded in the consolidated retained earnings?

    A subsidiary is consolidated up to the point it is disposed of. In the case of Sitin, 60% of it was disposed of at the year end, so it is 100% consolidated up to that point.

    Therefore, at the disposal date, Grange took 100% share of Sitin’s retained earnings ($35m – $32m) = $3m.

    Also, as per part a) of the question, the loss on disposal of Sitin was $6m:

    FV of consideration: $23m
    FV of residual: $13m
    Total: $36m

    less:

    Net assets derecognised: $35m
    Goodwill derecognised: $7m
    Total: $42

    Therefore loss on disposal = $6m

    Both the $3m retained earnings and loss on disposal of $6m are included in the consolidated retained earnings of Grange.

    At that point, Sitin has a carrying value of $16m in the accounts as an Associate but, as per the note, has a fair value of $13m. Therefore the investment in Sitin is impaired by $3m which should be included in your impairment review calculation along with the foreign and investment property revaluations, and the provision for environmental claims. The total of which, also goes in retained earnings of Grange.

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