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Subsidiary Disposal

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Subsidiary Disposal

  • This topic has 2 replies, 2 voices, and was last updated 1 year ago by alawi sayed.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • January 21, 2022 at 7:04 pm #647232
    alawi sayed
    Participant
    • Topics: 153
    • Replies: 166
    • ☆☆☆

    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
    –––––––

    January 23, 2022 at 5:56 pm #647341
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6453
    • ☆☆☆☆☆

    Hi,

    The group profit on disposal is based on the substance of the transaction in that we have disposed of the subsidiary net assets and removed the NCI at the date that control was lost.

    The net assets will be at their fair value in the calculation and the NCI includes all the NCI share of S’s profit (incl. adjustments) up to the date of disposal.

    Thanks

    January 30, 2022 at 8:53 pm #647759
    alawi sayed
    Participant
    • Topics: 153
    • Replies: 166
    • ☆☆☆

    Yes thanks Sir.

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