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Hello sir
this is extracted from page 94 0f OT-notes.
7.7.
Non-consolidation
Subsidiaries are not consolidated if it is:
Held for sale in accordance with IFRS 5according to ias 27 one of the exception from the scope of consolidation is when dealt with a subsidiary that was acquired for temporary period only (known as Temporary control).
If the management’s intentions were to dispose of the subsidiary within twelve months of its acquisition and the buyer was actively sought, the subsidiary was not consolidated in the financial statements of the parent. The subsidiary within the scope of the exemption was instead measured at fair value in accordance with IAS 39 Financial Instruments: Recognition and Measurement.
But it seems that it was after introduction of IFRS 5 it was decided that the exception would no longer be applicable ie we must show a subsidiary which is exclusively held for sale as AHFS in parents seperate FSs and consolidate it in Group FSs.so my question is this:
how should we show a subsidiary held for sale in parents seperate FSs and Group FSs?
1-show as investment as per ias 39(and ifrs 9)in parents seperate FSs and do not consolidate it for group purposes.
or
2- show it as disposal group as per ifrs 5 in parents seperate FSs and consolidate it for group purposes.Thank you in advance
IFRS 5 applies to accounting for an investment in a subsidiary for which control is intended to be temporary because the subsidiary was acquired and is held exclusively with a view to its subsequent disposal in the near future. For such a subsidiary, if it is highly probable that the sale will be completed within 12 months then the parent should account for its investment in the subsidiary under IFRS 5 as an asset held for sale, rather than consolidate it under IAS 27.
However, IAS 27 still requires that if a subsidiary that had previously been consolidated is now being held for sale, the parent must continue to consolidate such a subsidiary until it is actually disposed of. It is not excluded from consolidation and reported as an asset held for sale under IFRS 5.
An entity that is committed to a sale involving loss of control of a subsidiary that qualifies for held-for-sale classification under IFRS 5 shall classify all of the assets and liabilities of that subsidiary as held for sale, even if the entity will retain a non-controlling interest in its former subsidiary after the sale.”I have search for it. it seems that my answer is in the above sentence(which was previously under discussion in your site).
is this summary correct?
For a subsidiary had been previously consolidated is now being held for sale:
-Group FSs:consolidate it as usual(until it is actually disposed of) ie adding line by line (by considring effect of adjustments) of items in CSOPL and adding line by line of (by considring effect of adjustments) of items in CSOFP.
-Parents seperate FSs:treat with it as asset held for sale (show its assets as part of current asset and its liabilities as part of current liability in SOFP) and discontinued operation( Show its gain or loss net of tax after continuing operation PAT in SOPL)For a subsidiary held for resale (buy a subsidiary with intention to sale it within 12 months):
-Group FSs:treat with it as asset held for sale (show its assets as part of current asset and its liabilities as part of current liability in CSOFP) and discontinued operation( Show its gain or loss net of tax after continuing operation PAT in CSOPL)-Parents seperate FSs: treat with it as asset held for sale (show its assets as part of current asset and its liabilities as part of current liability in SOFP) and discontinued operation( Show its gain or loss net of tax after continuing operation PAT in SOPL)
Thank you in advance
thank you and that is useful as I am being practiced on the question related to IFRS 5
@trainee1 said:
IFRS 5 applies to accounting for an investment in a subsidiary for which control is intended to be temporary because the subsidiary was acquired and is held exclusively with a view to its subsequent disposal in the near future. For such a subsidiary, if it is highly probable that the sale will be completed within 12 months then the parent should account for its investment in the subsidiary under IFRS 5 as an asset held for sale, rather than consolidate it under IAS 27.
However, IAS 27 still requires that if a subsidiary that had previously been consolidated is now being held for sale, the parent must continue to consolidate such a subsidiary until it is actually disposed of. It is not excluded from consolidation and reported as an asset held for sale under IFRS 5.
An entity that is committed to a sale involving loss of control of a subsidiary that qualifies for held-for-sale classification under IFRS 5 shall classify all of the assets and liabilities of that subsidiary as held for sale, even if the entity will retain a non-controlling interest in its former subsidiary after the sale.”I have search for it. it seems that my answer is in the above sentence(which was previously under discussion in your site).
is this summary correct?
For a subsidiary had been previously consolidated is now being held for sale:
-Group FSs:consolidate it as usual(until it is actually disposed of) ie adding line by line (by considring effect of adjustments) of items in CSOPL and adding line by line of (by considring effect of adjustments) of items in CSOFP.
-Parents seperate FSs:treat with it as asset held for sale (show its assets as part of current asset and its liabilities as part of current liability in SOFP) and discontinued operation( Show its gain or loss net of tax after continuing operation PAT in SOPL)For a subsidiary held for resale (buy a subsidiary with intention to sale it within 12 months):
-Group FSs:treat with it as asset held for sale (show its assets as part of current asset and its liabilities as part of current liability in CSOFP) and discontinued operation( Show its gain or loss net of tax after continuing operation PAT in CSOPL)-Parents seperate FSs: treat with it as asset held for sale (show its assets as part of current asset and its liabilities as part of current liability in SOFP) and discontinued operation( Show its gain or loss net of tax after continuing operation PAT in SOPL)
Thank you in advance
Yes, your summary appears to be correct. Thanks
A subsidiary entity, Claystone Ltd, is for sale at a price $ 15 million. There has been some interest from prospective buyers but no sale as yet. One buyer has made an offer of $ 14 million but the directors of the parent company have declined the offer. An accountant firm which was appointed by the parent company has just submitted a report and advice that the fair value of Claystone Ltd is $ 16.5 million. They have decided not to lower the sale price of Claystone Ltd at the moment.
Discuss whether the subsidiary can be classified as held for sale.
Hello Sir can you help me out with this question?Hi,
What is it that you specifically need help with? Let me know and I can look to help out.
Thanks
In order to meet the criteria for classification as “held for sale,” the following conditions, as per the International Financial Reporting Standards (IFRS) 5, need to be met:
1. Management’s commitment to sell
The parent company’s directors declining the offer of $14 million suggests that they have the intention to sell Claystone Ltd. However, the fact that they have decided not to lower the sale price indicates that they are not actively seeking a sale at the moment. This condition is not clearly met.
2. Active program to locate a buyer
The information provided does not specify if the parent company has an active program to find a buyer. Without an active effort to market and sell the subsidiary, this condition may not be met.
3. The subsidiary is available for immediate sale
It is unclear from the information provided whether Claystone Ltd is available for immediate sale. The decision not to lower the sale price could indicate that the company is not actively seeking immediate sale.
4. The sale is highly probable
The fact that there has been interest from prospective buyers suggests that a sale is probable. However, the parent company’s decision to decline the $14 million offer and the lack of an active program to locate a buyer may raise doubts about the sale’s probability.
5. Active plan to sell within one year
There is not enough information as to whether there is an active plan to sell Claystone Ltd within the next year. If there is no such plan in place, this condition may not be met.
Considering the information provided, it may be concluded that Claystone Ltd cannot be classified as “held for sale.” The decision of the parent company’s directors not to lower the sale price and the lack of an active program to locate a buyer raise doubts about the intention and ability to sell the subsidiary in the near term. Further information about the parent company’s plans and actions regarding the sale would be necessary to make a definitive determination.
Is the summary correct, Claystone Ltd cannot be held as sale?That’s an excellent answer and one that would sit very well in SBR. It looks correct but I doubt that you would see something like this in the FR exam. The scenario would be far more clear cut and obvious as to whether the asset is held for sale or not in the FR exam.
Thanks
Hello.
I have faced below case need help if possible:
Company has 51% interest in a subsidiary and fully consolidates this entity recognizing NCI at the same time. For the year ended 30.06.2023 Company decided to sell 25% interest in subsidiary. However, since the transaction did not take place it should be classified as asset held for sale. In my opinion, investment in subsidiary should be recognized as investment in associate and consolidated with equity method. Or vice versa? There are some different answers above.
Could you please provide treatment for the mentioned transaction?
Thanks in advance
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