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The question reads:
Socks owned 90% of Mogs before it decided to sell a 50% stake of its investment on 31 December 2015 for $120 million. The non-controlling interest at that date was $53 million and the fair value of the remaining 40% is $96 million.The goodwill on acquisition of the original 90% holding was $38 million and the net assets at the date of disposal were $201 million.
Calculate the group profit on disposal that will appear in the group financial statements of Socks group for the year-ended 31 December 2015.
My understanding of the question is that Socks sold 50% of its stake in Mogs (which should be 50% of 90%=45% of the equity of Mogs). This means Socks will remain with 45% stake in Mogs.
The question suggests that Socks sold 50% of the equity of Mogs and in this case I will agree with the question, that Socks sold 50% and remained with 40%.
May you clarify the above Sir as I am confused by the wording of this question.
Hi,
I can understand your confusion, but the word stake is possibly the key as it is saying that the stake is the ownership we are disposing of, i.e. a 50% ownership stake, hence we are left with 40%. It would say that we disposed of 50% of our holding if it were the other way that you were thinking.
Don’t worry though as there wouldn’t be any confusion in the exam.
Thanks
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