Group Disposals
Group Disposal
• By the end of this session you should be able to:
• explain and illustrate the effect of the disposal of a
parent’s investment in a subsidiary in
• – the parent’s individual financial statements and/or
• – the group financial statements and answer
questions relating to these areas.
Disposal
GROUP DISPOSALS
Parent company Group
financial financial
statements statements
Impact on
financial
Gain on Disposal statements
Gain on
Disposal Non
inte
Disposal
• Disposal
• The disposal of a subsidiary needs to be reflected in
• parent individual financial statements
• group financial statements
• Take care. The calculations of profit for each are very different.
Disposal: Parent Financial Statements
• Parent financial statement of profit or loss
$
• Sale proceeds X
• Carrying amount of investment (X)
—–
• Profit/(loss) in parent SPL X
—–
Reporting
Show separately as exceptional item on face of SPL below profit from
operations
Tax payable by parent/group is calculated on parent’s profit NOT group
profit
Consolidated financial statements
• FR will only examine full disposal of a subsidiary, i.e. sale of all
shares held by the parent.
• Impact on consolidated financial statements
• Statement of profit or loss
• – Subsidiary results consolidated up to date of disposal
• – Profit/loss on disposal
• – Alternative: treat as discontinued operation (see chapter 5)
• Statement of financial position
• – Subsidiary not consolidated
• – Profit/loss on disposal included within retained earnings
Consolidated statement of profit or loss
Consolidated statement of profit or loss
$
• Sale proceeds X
• Net assets of subsidiary at disposal X
• Net goodwill at disposal X
• Non-controlling interest at disposal (X)
——
(X)
——
• Profit/(loss) in consolidated SPL X
——
Calculation of values at disposal
• Calculation of values at disposal
• You may be required to calculate one or more of the values in the
above calculation.
• Net assets
• If fair value adjustments are necessary, it may be helpful to use a
standard Working 2 with columns for acquisition, disposal and post-
acquisition.
Calculation of values at disposal
• If necessary to calculate the assets due to a mid-year disposal:
$
• Net assets b/f X
• Profit/(loss) to date of disposal X
• Dividends paid prior to disposal (X)
——
• Net assets at disposal date X
——
Calculation of values at disposal
• Goodwill
• For calculation of goodwill use a standard Working 3, remembering
to deduct any impairment.
• Non-controlling interest (NCI)
• For calculation of NCI use a standard SFP Working 4 to the date of
disposal.
Example
• Disposal of subsidiary
• Paul acquired an 80% interest in Simonon for $6 million on 1 April
20X3, at which date Simonon’s net assets had a fair value of $5
million and the fair value of the non-controlling interest was $1.2
million.
• At 30 June 20X6 Paul sold all of its shares in Simonon for $8 million.
At this date the fair value of Simonon’s net assets was $7 million.
Goodwill had been impaired by $1 million by the date of disposal.
• Paul values non-controlling interest using the fair value method.
• Tax on Paul’s profits is charged at 30%.
• Required:
• Calculate the profit after tax on disposal of Simonon to be shown
in
• (i) Paul’s individual statement of profit or loss
• (ii) Paul’s consolidated statement of profit or loss