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DISPOSAL OF SHAREHOLDING
THERE ARE 2 TYPES OF POSIBILITIES TO CONSIDER WITH THE DISPOSAL OF SHAREHOLDING IE
I n this case a sub shareholding will be sold in its entirely, ie 100% of the shares
held by the parent will be sold.As such control is lost and the following must take
place;
1) De-recognize the assets and liabilities of the sub from the group at the
carrying value at the date of disposal.This will include the removal of any
unimpaired goodwill that may exist.
2) De-recognise the NCI at the date of loss of control (because the parent
does not have an NCI anymore.
3) Recognize the fair value of consideration received.
4) All entries are calculated in a disposal account and any gains or losses
arising as a result of this are then taken to the P&L.
Less; Fair value of Sub”s separate net assets @ disposal date (X)
Less; Unimpaired goodwill (NBV of G/W ie not yet impaired at disposal date (X)
EXAMPLE
P sold all of the shares that it held in S at 31 December 2016 for $625Million. The
fair value of the sub’s net assets at this date was $520M. There is no impairment
of G/W.
SOLUTION
$(M)
Proceeds 625
Bought for (500)
Gain on disposal 125
Ie DR NCI
CR Disposal a/c 72
Less; fair value of Sub’s separable net assets @ disposal date (520)
Ie DR Disposal a/c
Cr G/W (100)
2
WORKINGS;
1) Goodwill at acquisition $M
Investment @cost
CI 500
NCI 60
560
***OR
Proceeds 625
G/W 100
620
3
HOMEWORK EXAMPLE
Peanut purchased 75% of the shares of Salt 3 years ago for $80M.The fair value of
the net assets at the date of acquisition amounted to $90M.The fair value of the
non-controlling interest @ acquisition was $25M.Peanut measures the non-
controlling interest @ fair value.
On 30 June 2016, Peanut disposed off its entire holding in Salt for $98M when the
net assets of Salt were $110M.There had been no impairment of G/W since
acquisition.
REQUIRED
SOLUTION TO PEANUTS
$M
4
Fair value of consideration 98
Workings
1) Goodwill on Acquisition $M
Cost of investment
CI 80
NCI 25*
105
5
Pen acquired 70% of Stokes for $93M several years ago when the Fair value of the
Net Assets of Stokes was amounted to $120M.For the purpose of calculating
G/W,the NCI was measured @ the acquisition date as $36M.
On 1 April 2016, Pen disposed off its full shareholding in Stokes for consideration
of $131M.The Net Assets of Stokes were $171M @ 1 Jan 2016 & $183M @ 31 Dec
2016.
The Statement of P/L of Pen and Stokes for the year ended 31 Dec 2016 was as
follows;
Additional Information
6
Prior to disposal goods were sold to Pen by Stokes for $3M .These were
purchased by Pen and were all sold on to third parties by the year end.
REQUIRED
Prepare the consolidated SPL for the year ended 31 Dec 2016.You should ignore
any tax implications of the sale of Stokes.
TIP ; When a group has disposed off a subsidiary in the reporting period,its results
are only consolidated until the date of disposal.A group gain or loss on disposal is
calculated & included in the Consolidated statement of P/L.
29.6
7
WORKINGS
1) GROUP STRUCTURE
Sub S was 70% for first 3 months of the year pre disposal.
Less; Fair value of sub’s net assets @ disposal date (171 given
Plus 3 for this year,from CSPL,or ¾ x12 from Sub’s P/L in question (74)
NOTE; Part gain on disposal (sold for $131M less bought for 93) 38
8
3 Goodwill on Acquisition $M
Cost of Investment
CI 93
129
$36M @ acquisition + $15.3M + $0.9M for current year ie, 30%x12 retained
profit per Ques for Sub x ¾ of the year pre-disposal = $52.2M. (used in main
disposal calculation above).
THE END
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