Subsidiary Disposal

Hello Mr Chris,

In case of a subsidiary disposal do we have to look into the consolidated post of acquisition profit or we have to consider the subsidiary own profit statement to arrive at the disposal profit or loss. Do we have to make the adjustments for the profit figure which we have to do for the consolidated profit
and also the NCI value .

Thanks,

like in the following question part C :

420 PITCARN
The Pitcarn group owns a number of subsidiaries. On 31 March 20X6, the Pitcarn group sold
its entire holding in Sitor. The consolidated statement of profit or loss of the Pitcarn group
for 20X6 has been produced without the results of Sitor due to its disposal. No profit or loss
on disposal has been included in the 20X6 consolidated statement of profit or loss.
Extracts from the consolidated statements of profit or loss for the Pitcarn group are below:
Statements of profit or loss (extracts) for the year ended 31 March
20X6 20X5
$000 $000
Revenue 86,000 99,000
Cost of sales (note (ii)) (63,400) (67,200)
––––––– –––––––
Gross profit 22,600 31,800
Other income (notes (i) and (iii)) 3,400 1,500
Operating expenses (21,300) (23,200)
––––––– –––––––
Profit from operations 4,700 10,100
Finance costs (1,500) (1,900)

(iv) Sitor’s individual statement of profit or loss for the year ended shows the following:
$000
Revenue 16,000
Cost of sales (10,400)
–––––––
Gross profit 5,600
Operating expenses (3,200)
–––––––
Profit from operations 2,400
Finance costs (900)
Required:
(a) Calculate the equivalent ratios for the consolidated statement of profit or loss for
the year ended 31 March 20X6 if Sitor had been consolidated (7 marks)
(b) Analyse the performance of the Pitcarn group for the year ended 31 March 20X6.
This should also include a discussion of Sitor (8 marks)

(c) Pitcarn acquired 80% of Sitor’s 10 million $1 shares on 1 April 20X1 for $17 million
when Sitor had retained earnings of $3 million. Pitcarn uses the fair value method for
valuing the non?controlling interest. At acquisition the fair value of the non?controlling
interest was $3 million.
On 31 March 20X6, Pitcarn sold its entire shareholding in Sitor for $25 million when
Sitor had retained earnings of $7 million. Goodwill had suffered no impairment since
acquisition.
Calculate the gain/loss on disposal to be shown in the consolidated statement of
profit or loss for the year ended 31 March 20X6. (5 marks)
(Total: 20 marks) ?

———————-
Answer

(c) Gain/loss on disposal
$000 $000
Proceeds 25,000
Net assets at disposal
(10,000 share capital + 7,000 retained earnings)
17,000
Goodwill at disposal (W1) 7,000
Non?controlling interest at disposal (W2) (3,800)
––––––– (20,200)
–––––––
Gain on disposal 4,800
–––––––
Workings
(W1) Goodwill
$000
Consideration 17,000
NCI at acquisition 3,000
Net assets at acquisition
(10,000 share capital + 3,000 retained earnings) (13,000)
–––––––
Goodwill at acquisition 7,000
–––––––
(W2) Non?controlling interest at disposal
$000
NCI at acquisition 3,000
NCI share of Sitor’s post acquisition retained earnings
(20% × (7,000 – 3,000)) 800
–––––––
Non?controlling interest at disposal 3,800
–––––––