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Chapter 5 - Group Disposals
Chapter 5 - Group Disposals
GROUP DISPOSALS
In this chapter we will be considering how to deal with the situation where a parent sells its
shareholding in a subsidiary during the year. We will have to calculate a profit or loss on disposal in
the statement of profit or loss of both the parent and the group.
Disposals
When a shareholding in a subsidiary is disposed of it must be reflected in the
a) parent company’s individual financial statements and
b) the group financial statements.
Any tax on the gain is calculated by reference to the gain in the parent's individual financial
statements.
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This gain will be included in the consolidated statement of profit or loss.
Note: Any tax on the gain is calculated using the gain in the parent's individual financial statements.
Note: The net assets at disposal may also include any remaining fair value adjustments to the
subsidiary's net assets. The amount to include in net assets at disposal is the fair value adjustment
made on acquisition, less fair value depreciation to date between acquisition and disposal. It may be
helpful to use a standard W2 for the figures at the disposal date.
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(ii) Proportion of net assets method
If non-controlling interest is valued as the proportion of net assets, then the NCI at disposal is NCI %
of S's net assets at the date of disposal. Alternatively, you can use the method below.
Exercise 1
Rock acquired a 70% investment in Dog for $2,000 two years ago. It is group policy to measure non-
controlling interests at fair value at the date of acquisition. The fair value of the non-controlling
interest in Dog at the date of acquisition was $800 and the fair value of Dog's net assets was $1,900.
The goodwill has not been impaired.
Rock disposed of all of its shares in Dog for sale proceeds of $3,000. The fair value of Dog’s net
assets at the date of disposal was $2,400.
Exercise 2
The statements of profit or loss for the year ended 31 December 20X9 are as
follows:
Additional information:
On 1 January 20X5 Kathmandu acquired 70% of the shares of Nepal for $100,000 when the fair
value of Nepal's net assets was $110,000. Nepal has equity capital of $50,000. At that date, the fair
value of the noncontrolling interest was $40,000. It is group policy to measure the NCI at
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fair value at the date of acquisition.
Nepal paid a $10,000 dividend on 31 March 20X9.
Required: Prepare the group statement of profit or loss for the year ended 31 December 20X9 for
the Kathmandu group on the basis that Kathmandu sold its holding in Nepal on 1 July 20X9 for
$200,000. This disposal is not yet recognised in any way in Kathmandu’s statement of profit or
loss.
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