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com Example 18: Disposal of subsidiary Consolidation/Group Accounts

Mommy Corp acquired 80% share in Baby Plc. 3 years ago when Baby's retained earnings were CU 12 000. On 31 December 20X6 Mommy sold full 80%-share for CU 180 000.
Mommy accounted for non-controlling interest by the proportionate share method and no impairment of goodwill was charged. Mommy accounted for its investment in Baby at cost in its
individual financial statements under IAS 27. Ignore the taxation and prepare consolidated financial statements of Mommy Group at 31 December 20X6.

Statement of financial position as at 31 December 20X6 Statement of P/L for the year ended 31 December 20X6
Mommy Corp. Baby Plc. Mommy Corp. Baby Ltd.

ASSETS PROFIT OR LOSS

Non-current assets Revenues from sales of goods 110,000 55,000
Property, plant and equipment 120,000 95,000 Cost of sales -88,000 -43,000
Investment in Baby Ltd. (80 000 1CU-shares) 100,000 0 Gross profit 22,000 12,000
Deferred tax asset 4,000 Marketing and distribution expenses -3,500 -2,200
224,000 95,000 Administrative and other expenses -2,000 -1,000
Current assets Profit from operations 16,500 8,800
Inventories 38,000 28,800 Finance cost -500 -30
Trade and other receivables 24,000 17,600 Profit before tax 16,000 8,770
Cash and cash equivalents 21,000 12,300 Income tax expense -3,000 -1,400
83,000 58,700 Net profit for the year 13,000 7,370
TOTAL ASSETS 307,000 153,700

EQUITY & LIABILITIES

Equity
Equity attributable to owners of the parent
200 000 shares (1 CU each) -200,000
80 000 shares (1 CU each) -80,000
Retained earnings -62,000 -36,700
Non-controlling interest
-262,000 -116,700
Liabilities
Non-current liabilities
Deferred tax liability -2,000
Current liabilities
Trade payables -35,000 -20,000
Loans repayable within 12 months -10,000 -15,000
-45,000 -35,000
TOTAL EQUITY & LIABILITIES -307,000 -153,700
CHECK 0 0

SOLUTION

Workings:
[1]
Goodwill at acquisition: -> You need it to calculate gain/loss on the disposal of Baby (Working [3])
FV of consideration paid: 100,000
Non-controlling interest at acquisition:
Baby's share capital 80,000
Baby's retained earnings at acquisition (per question) 12,000
Total 92,000
NCI's share at 20%: 18,400
Less Baby's net assets at acquisition:
Baby's share capital 80,000
Baby's retained earnings at acquisition (per question) 12,000
Total -92,000
www.IFRSbox.com Example 18: Disposal of subsidiary Consolidation/Group Accounts

Goodwill: 26,400 -> all goodwill was disposed off by sale

[2]
Mommy's gain in the individual financial statements -> You need it for the consolidated balance sheet (it appears in retained earnings)
FV of consideration received: 180,000
Less carrying amount of investment in Baby in Mommy's financial statements -100,000
Mommy's profit: 80,000

[3]
Mommy Group's gain in the consolidated financial statements -> You need it for the consolidated profit or loss statement and for the consolidated statement of changes in equity
FV of consideration received: 180,000
Less Group's share on Baby's net assets at disposal:
Baby's share capital at disposal 80,000
Baby's retained earnings at disposal 36,700
Total 116,700
Group's share at 80%: -93,360
Less goodwill (see working [1] for calculation) -26,400
Total gain on disposal 60,240

[4]
Consolidated retained earnings brought forward (1 January 20X6)
Mommy's retained earnings @31 December 20X6
Less Mommy's profit for the year 20X6
Mommy's retained earnings @1 January 20X6
-> You need it for the consolidated statement of changes in equity
62,000
-13,000
49,000 -> Note that we go backwards here - we know amounts at the year-end, so we come back to the beginning of the year

Baby's retained earnings @31 December 20X6 36,700

Less Baby's pre-acquisition retained earnings (per quest -12,000
Less Baby's profit for the year 20X6 -7,370
Baby's retained earnings @1 January 20X6 - group's sha 17,330
Group's share of 80% 13,864
Total consolidated retained earnings at 1 January 20X6 62,864

[5]
Non-controlling interest brought forward (1 January 20X6) -> You need it for the consolidated statement of changes in equity
Non-controlling interest at acquisition (see working [1]) 18,400
Add NCI's share on post-acquisition retained earnings:
Baby's retained earnings @1 January 20X6 - see [4] 17,330
NCI's share at 20% 3,466
Total non-controlling interest brought forward (1 January 20X6) 21,866

CONSOLIDATED FINANCIAL STATEMENTS OF MOMMY GROUP @31 DECEMBER 20X6

#1 Consolidated statement of financial position

Mommy: Separate St of FP Note

Statement of financial position as at 31 December 20X6 Consolidated St
Sale of share in of FP As you can see, in this case, consolidated
Adjusted statement of FP
Mommy Corp. Baby Plc. Baby statement of FP is the same as Mommy's
individual statement of FP.
Why?
Because at 31 December 20X6, there's no
investment.
(If Mommy would have sold only a part of its
holding, then it woud have been different).
 Note
www.IFRSbox.com Example 18: Disposal of subsidiary Consolidation/Group
As you can see, in this case, consolidated Accounts
statement of FP is the same as Mommy's
individual statement of FP.
ASSETS Why?
Non-current assets Because at 31 December 20X6, there's no
Property, plant and equipment 120,000 95,000 120,000 120,000 investment.
Investment in Baby Ltd. (80 000 1CU-shares) 100,000 0 -100,000 0 0 (If Mommy would have sold only a part of its
Deferred tax asset 4,000 4,000 4,000 holding, then it woud have been different).
224,000 95,000 124,000 124,000
When you dispose your investment in full, then
you have no control, you don't add up all
Current assets balances.
Inventories 38,000 28,800 38,000 38,000 Careful - this is valid only for the statement of
Trade and other receivables 24,000 17,600 See working [2]
180,000 204,000 204,000 FP, not for the profit/loss and changes in equity.
Cash and cash equivalents 21,000 12,300 21,000 21,000
83,000 58,700 263,000 263,000
TOTAL ASSETS 307,000 153,700 387,000 387,000

EQUITY & LIABILITIES

Equity
Equity attributable to owners of the parent
200 000 shares (1 CU each) -200,000 -200,000 -200,000
80 000 shares (1 CU each) -80,000 0 0
Retained earnings -62,000 -36,700 -80,000 -142,000 -142,000
Non-controlling interest
-262,000 -116,700 -342,000 -342,000
Liabilities
Non-current liabilities
Deferred tax liability -2,000 0 0
Current liabilities
Trade payables -35,000 -20,000 -35,000 -35,000
Loans repayable within 12 months -10,000 -15,000 -10,000 -10,000
-45,000 -35,000 -45,000 -45,000
TOTAL EQUITY & LIABILITIES -307,000 -153,700 -387,000 -387,000
CHECK 0 0 0

#2 Consolidated statement of total comprehensive income

See working Consolidated St Note

Statement of P/L for the year ended 31 December 20X6 Combine Group[3]
profit on disposal Here, we aggregated the amounts.
of P/L
Mommy Corp. Baby Ltd. The reason is that P/L statement is a statement
of movements during the year and during 20X6,
PROFIT OR LOSS Baby was a part of the Group.
Revenues from sales of goods 110,000 55,000 165,000 165,000
Cost of sales -88,000 -43,000 -131,000 -131,000 If a subsidiary is disposed of during the year,
Gross profit 22,000 12,000 34,000 34,000 you include only the amounts of revenue and
Marketing and distribution expenses -3,500 -2,200 -5,700 -5,700 expenses from the beginning of the period until
Administrative and other expenses -2,000 -1,000 -3,000 -3,000 the date of disposal.
Profit from operations 16,500 8,800 25,300 25,300
Profit on disposal of subsidiary (Baby) 60,240 60,240
Finance cost -500 -30 -530 -530
Profit before tax 16,000 8,770 24,770 85,010
Income tax expense -3,000 -1,400 -4,400 -4,400
Net profit for the year 13,000 7,370 20,370 80,610
Attributable to shareholders of Mommy 79,136
Attributable to NCI 1,474
See working [5]
#3 Consolidated statement of changes in equity See working [4]

Statement of changes in equity Note

(extract) Retained Non-controlling The balaces of equity accounts at the year-end
Share capital TOTAL
earnings interest are only those of Mommy, because Baby is
gone.
DO NOT FORGET to remove any non-controlling
interest related to Baby when disposing all of
your investment.
 See working [4]

www.IFRSbox.com Example 18: Disposal of subsidiary Consolidation/Group Accounts

Note
The balaces of equity accounts at the year-end
Share capital TOTAL
earnings interest are only those of Mommy, because Baby is
Balance b/f (at 1 January 20X6) 200,000 62,864 21,866 284,730 gone.
Total comprehensive income for the year 79,136 1,474 80,610 DO NOT FORGET to remove any non-controlling
interest related to Baby when disposing all of
Elimination of non-controlling interest at disposal of Baby -23,340 -23,340 your investment.
Balance c/f (at 31 December 20X6) 200,000 142,000 0 342,000