ACCA P2 (INT) Corporate Reporting - Study text - 2010 (Emile Woolf)
Подождите немного. Документ загружается.
Chapter 6: Group financial statements: step acquisitions and disposals
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 163
The same rules apply to the disposal of some shares without losing control as to the
purchase of additional shares when control already exists.
Example
Pick owns 90% of the equity of Sack. The net assets of Sack are $600 million and the
carrying amount of the non-controlling interest in Sack is $60 million (= 10%).
Pick now sells 20% of the shares in Sack to a number of other investors for $155
million. Pick retains control of Sack because its shareholding is 70%.
Under the rules of IAS 27 (revised) this transaction should be accounted for as an
equity transaction.
The parent company receives $155 million from selling shares to non-controlling
interests; therefore assets (cash) in the consolidated statement of financial
position are increased by $155 million.
The NCI is increased by 20%, and in the consolidated statement of financial
position this will be reported as an increase of $120 million (= 20% × $600
million) in NCI to $180 million.
Pick has received $155 million to dispose of shares with a net asset value of $120
million at fair value; therefore there is an increase of $35 million in the equity
attributable to owners of the parent company.
The transaction therefore has the following effect:
Debit: Cash $155 million
Credit: NCI $120 million
Credit: Pick controlling equity interest in the group $35 million.
Example
Pin owns 80% of the equity of Skin. The net assets of Skin are $300 million and Skin
has 100 million equity shares in issue Skin now issues 20 million new shares for $90
million and Pin does not buy any of the shares.
After the share issue there are 120 million shares in issue and Pin owns 80 million of
them. This is a 66.7% interest in Skin, and it is assumed that Pin therefore retains
control.
There is a change in shareholding without loss of control, and this is accounted for
as an equity transaction.
Paper P2 INT: Corporate Reporting
164 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Pin
NCI
Netassets
ofSkin
$million
$million $million
Beforetheshareissue (80%) 240 (20%) 60 300
Aftertheshareissue (66.7%) 260 (33.3%) 130 390
–––––––––––––
––––––––––––– –––––––––––––
Change
+20
+70 +90
–––––––––––––
––––––––––––– –––––––––––––
The transaction therefore has the following effect:
Debit: Cash $90 million
Credit: NCI $70 million
Credit: Pin controlling equity interest in the group $20 million.
Example
On 1 January Year 9, Hak acquired 70% of the equity shares of Stak for $450
million. The fair value of the identifiable net assets in Stak at that date was $600
million. The fair value of the NCI at 1 January Year 9 was $264 million. Hak
subsequently sold 10% of the equity shares of Stak on 31 December Year 9 for $102
million. The carrying value of the net assets of Stak at 31 December Year 9 was
$670 million.
Hak wishes to use the full goodwill method for consolidation.
This is similar to the example in paragraph 1.3 above, except that Hak is selling 10%
of its shares in Stak, whilst still retaining a controlling interest (instead of acquiring
an extra 10%). The purchased goodwill at 1 January Year 9 was $114 million (see
earlier example for the calculation).
$m
Stak net assets at 1 January Year 9 600
Increase in net assets to 31 December 70
Stak net assets at 31 December Year 9 670
Consideration received for shares 102.0
Transfer to NCI: 10% × (net assets 670 + goodwill 114)
(78.4)
Increase in equity attributable to Hak shareholders 23.6
Chapter 6: Group financial statements: step acquisitions and disposals
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 165
2.3 Disposals of shares in subsidiaries and loss of control: the general
accounting rules
When a parent company sells shares in a subsidiary and loses control by doing so,
the general accounting rules are the same for a full or a partial disposal. These are
set out in IAS 27 (revised) as follows:
Consolidated statement of financial position: general rules
The accounting changes in the (consolidated) statement of financial position are as
follows:
The assets of the former subsidiary, together with any related goodwill, are
derecognised and removed from the (consolidated) statement of financial
position at their carrying amount at the date when control is lost.
The non-controlling interests in the subsidiary are also derecognised and
removed from the (consolidated) statement of financial position), including any
components of other comprehensive income attributable to the NCI.
The parent recognises the fair value of the consideration (if any) received from
the transaction or event that caused the loss of control. For example, if the parent
sells shares for cash and loses control in doing so, it should recognise the assets
(cash) received as consideration.
Any investment retained in the former subsidiary should be recognised at its fair
value at the date when control is lost, and accounted for in accordance with
other IFRSs from the date that control is lost (as an associate in accordance with
IAS 28 or as a financial asset in accordance with IAS 39).
The fair value of the remaining investment on loss of control of the subsidiary
should be regarded as the fair value of the investment on initial recognition
(IAS 39) or as the cost on initial recognition of the investment in an associate
(ISAS 28).
Consolidated statement of comprehensive income: general rules
As a result of the disposal of the shares by the parent, there will be a gain or loss on
disposal attributable to the owners of the parent entity. The total gain or loss should
be analysed in order to decide how much should be reported:
(1) as a direct transfer to retained earnings
(2) as a reclassification adjustment from other comprehensive income to profit or
loss, and
(3) in profit or loss, as a gain or loss on disposal.
The consolidated statement of comprehensive income might previously have
recognised gains or losses relating to the subsidiary in other comprehensive income.
For example when control in the former subsidiary is lost, the subsidiary might hold
some available-for-sale financial assets, for which a gain has previously been
included in other comprehensive income. Similarly, when control in the former
subsidiary is lost, the subsidiary might have non-current assets for which a
revaluation gain has previously been reported in other comprehensive income.
Paper P2 INT: Corporate Reporting
166 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
If a gain or loss previously recognised in other comprehensive income would be
reclassified to profit and loss on disposal of the related assets (or liabilities), the
parent should re-classify the previously-recognised gain from equity to profit or loss
as a reclassification adjustment when control in the subsidiary is lost.
For example if a subsidiary has available-for-sale financial assets on which a gain
has previously been reported in other comprehensive income, the parent should
reclassify the gain to profit or loss.
If a gain on revaluation previously recognised in other comprehensive income
would be transferred directly to retained earnings on disposal of the asset, the
parent should transfer the revaluation surplus directly to retained earnings when it
loses control of the subsidiary.
Any balancing gain or loss on loss of control is reported as a gain or loss in profit
and loss, before tax.
The total gain or loss on loss of control in a subsidiary is as follows:
$m $
Carryingvalueofformersubsidiary’snetassetsatdate
controlislost
A
MinusCarryingvalueofNCIshareofthesenetassets
(includingaccumulatedothercomprehensiveincome
attributabletotheNCI)
(B)
A–B=C
Consideration(ifany)receivedfromtransactionresulting
inlossofcontrol
X
+Fairvalueofanyretainedinvestmentintheformer
subsidiary
Y
X+Y=Z
Totalgain(orloss)
Z–C
Amountspreviouslyrecognisedasothercomprehensive
incomerelatingtotheformersubsidiary,nowaccounted
forasadirecttransfertoretainedprofitorasa
reclassificationadjustment
+or–D
Gainorlosstoreportinprofitorloss
Z–C+/‐D
Example
On 1 January Year 9, Hevi acquired 90% of the equity shares of Sevi for $120
million. The fair value of the identifiable net assets in Sevi at that date was $111
million. The fair value of the NCI at 1 January Year 9 was $9 million. Hevi
subsequently sold 65% of the equity shares of Sevi on 31 December Year 9 for $97
million. The carrying value of the net assets of Sevi at 31 December Year 9 was $124
million. Of the increase in net assets of Sevi between 1 January and 31 December,
Chapter 6: Group financial statements: step acquisitions and disposals
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 167
$10 million had been reported in profit or loss and $3 million in comprehensive
income.
The remaining equity in Sevi held by Hevi at 31 December was valued at $36
million, and this investment is classified as an associate. (As a result of the sale of
the shares in Sevi, no other investor obtained overall control.)
Hevi uses the full goodwill method for consolidation.
The gain on disposal recognised in profit or loss should be calculated as follows:
$m $m
Consideration received for shares in Sevi on 31 December 97.0
Fair value of remaining interest, valued as an associate 36.0
Value of NCI at 31 December (10% × 124 million)
12.4
Gain reported in comprehensive income 3.0
148.4
Net assets and goodwill de-recognised in consolidated
accounts
Net assets de-recognised 124.0
Goodwill de-recognised: (120 + 9 – 111) 18.0
(142.0)
Gain on disposal, reported in profit or loss 6.4
2.3 Full disposal of shares in a subsidiary
In order to apply the rules in IAS 27 (revised) for the disposal of shares in a
subsidiary so that loss of control occurs, it is necessary to establish the consolidated
financial position as at the date when control is lost.
Consolidated profit or loss
The profits of the subsidiary are consolidated and included in the group profit for
the year, but only up to the date of disposal. This profit is divided between the
parent company’s share and the non-controlling interest.
The carrying amount of the net assets of the subsidiary at the date when control is
lost is therefore:
the carrying amount of its net assets at the beginning of the financial year
plus the profit after tax of the subsidiary for the year up to the date when control
is lost
minus any distributions (dividends paid) to the subsidiary’s shareholders
during the year up to the date of loss of control.
Paper P2 INT: Corporate Reporting
168 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Example
At 1 January Year 9, Holder held 80% of the equity of Stubb. The carrying value of
the net assets of Stubb at this date was $570 million. There was also goodwill of $20
million net of accumulated impairments relating to the investment in Stubb: all this
goodwill is attributable to the equity owners of Holder.
On 1 April Year 9, Holder sold its entire shareholding in Stubb for $575 million in
cash. At this date there was a balance of $40 million on the revaluation reserve of
Stubb relating to a re-valued property.
Holder has a financial year ending 31 December. It was subsequently established
that the profit after tax of Stubb for the year to 31 December Year 9 was $120 million.
Stubb did not make any dividend payment during the year before the disposal of
the shares.
How should the disposal of the shares be accounted for? Ignore deferred taxation.
Answer
In the three months of the year to the date of disposal of the shares in Stubb, the
after-tax profit of Stubb was $30 million (= $120 million × 3/12). The carrying value
of the net assets of Stubb at the date that control was lost is therefore $600 million
(= $570 million + $30 million).
The requirements of IAS 27 are as follows.
Holder must derecognise the assets and liabilities of Stubb, including any related
goodwill, at their carrying amount a the date that control is lost. Holder must
therefore derecognise $620 million (= $600 million net assets + $20 million
goodwill).
Holder must also de-recognise the non-controlling interest of $120 million (=
$600 million net assets × 20% NCI).
Holder must recognise the consideration received from the sale of the shares (=
$620 million).
This gives the following total gain on disposal of the shares:
$million
Netassetsremovedfromstatementoffinancialposition,including
goodwill
620
NCIremoved/derecognised
120
Holder’sshareofassetsderecognised
500
Considerationreceivedfromsaleofshares 575
Totalgain
75
When control is lost, Holder derecognises an asset for which there is a balance of
$40 million on the revaluation reserve. On disposal of such an asset, the balance on
Chapter 6: Group financial statements: step acquisitions and disposals
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 169
the revaluation reserve attributable to equity owners of Holder (= 80% × $40 million
= $32 million) should be transferred directly to retained profits.
The balancing gain on disposal of the shares in Stubb should be reported in the
profit or loss of holder for the year to 31 December Year 9.
$million
Transferofrevaluationsurplusdirectlytoretainedprofits
75
Holder:profitondisposalofsharesinStubb(balance)
32
Totalgain
43
2.4 Partial disposal of shares: subsidiary becomes an associate after the
disposal
When there is a partial disposal of shares in a subsidiary during the year, and the
subsidiary becomes an associate after the share disposal, the same accounting rules
should be applied.
Example
At 1 January Year 9, Hudd held 75% of the equity of Sudd. The carrying value of
the net assets of Sudd at this date was $200 million. There was also goodwill of $15
million net of accumulated impairments relating to the investment in Hudd: all
this goodwill is attributable to the equity owners of Hudd.
On 1 July Year 9, Hudd sold 50% of the shares of Sudd to a number of different
investors, receiving $575 million in cash from the sales.
Hudd has a financial year ending 31 December. It was subsequently established that
the profit after tax of Sudd for the year to 31 December Year 9 was $80 million. Sudd
did not make any payment of dividend during the year before 1 July.
How should the disposal of the shares be accounted for? Assume that fair value of
the net assets of Sudd at the date control was lost was equal to their carrying value.
Answer
In the six months of the year to the date of disposal of the shares in Sudd, the after-
tax profit of Sudd was $40 million (= $80 million × 6/12). The carrying value of the
net assets of Sudd at the date that control was lost is therefore $240 million (= $200
million + $40 million).
The requirements of IAS 27 are as follows.
Hudd must derecognise the assets and liabilities of Sudd, including any related
goodwill, at their carrying amount a the date that control is lost. Hudd must
Paper P2 INT: Corporate Reporting
170 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
therefore derecognise $255 million (= $240 million net assets + $15 million
goodwill).
Hudd must also de-recognise the non-controlling interest of $60 million (= $240
million net assets × 25% NCI).
Hudd must recognise the consideration received from the sale of the shares (=
$620 million).
Hudd must also recognise the retained investment in 25% of the shares of Sudd,
at fair value. It is assumed that fair value = 25% × net assets $240 million = $60
million.
This gives the following total gain on disposal of the shares:
$million $million
Netassetsremovedfromstatementoffinancialposition,
includinggoodwill
255
NCIremoved/derecognised
60
Hudd’sshareofassetsbeforedisposal
195
Investmentinassociateretained,atfairvalue 60
Considerationreceivedfromsaleofshares 150
210
Totalgain
15
The entire gain on disposal should be recognised in profit or loss for the year to 31
December Year 9.
The net effect on the consolidated statement of financial position of Hudd is as
follows, at the date control is lost:
Debit Credit
$million $million
Netassetsremovedfromstatementoffinancialposition,
includinggoodwill
255
Assetsintroducedtostatementoffinancialposition(60
investment+150cash)
210
DerecognitionofNCI 60
Gainondisposalofshares
15
2.5 Partial disposal of shares: the remaining shares become an ordinary
investment
When there is a partial disposal of shares in a subsidiary during the year, and the
remaining shares in the former subsidiary become a simple investment, the same
accounting rules should be applied. The accounting treatment is the same, with the
exception that the fair value of the investment retained is treated as a financial
investment in accordance with the requirements of IAS 39.
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 171
Paper P2 (INT)
Corporate Reporting
CHAPTER
7
Group reorganisations
and restructuring
Contents
1 Group reorganisations and restructuring
Paper P2: Corporate Reporting (International)
172 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Group reorganisations and restructuring
Methods of reorganising/restructuring
Creating a new holding company
A change in ownership of companies within a group
Divisionalisation within a group
A demerger
Why reorganise/restructure?
1 Group reorganisations and restructuring
1.1 Methods of reorganising/restructuring
Groups may sometimes be restructured or reorganised. There are various reasons
why a restructuring might be considered necessary or desirable. These are
explained later. Examples of reorganisations or restructuring include the following:
creating a new holding company for the group
a change in ownership between companies in the group
divisionalisation
a demerger.
1.2 Creating a new holding company
A new holding company may be created for the group. The reason for this may be
to improve the structure of the group, possibly with a view to making more changes
later, such as adding new subsidiaries.
The effect of creating a new holding company is typically as follows:
Before: After:
Shareholders Shareholders
Company X Holding company H
Company X