100% Acquisition and disposal of a company

[Nine2230]

Hi,

here my case.

Company A bought 100% of company B in September for 800k euros.
In October, the shareholders' meeting of company B approved the distribution of dividends for 700k euros (available cash at the moment).
In November, after collecting dividends, company A sold 100% of company B to the managing director for 50k euro.

What Ifrs applies to this case?
Ifrs 9? Ifrs 5?

Thank you for your help.

[JRSB]

various including https://ifrscommunity.com/knowledge-bas ... tatements/
what is your specific question?

[Nine2230]

Ok, my doubts are the following.

Company A accounts for dividends received in the income statement (financial income).
Then company A sells the investment and recognises a capital loss (financial charges).

At the end of year, preparing the financial statement, has company A to reclassified the profit and loss by this operation as Ifrs 5 in the line "Profit from discontinued operations" or can left dividend and capital loss into the financial income/charges' line?

Thank you

[Leo]

I think only gain or loss from disposal of the entity will be shown in the P&L. The dividend is eliminated at the conso level.

Unless the entity you discontinue is a whole segment of your business, we don't class the P&L in one line.

[Marek Muc]

The dividend is eliminated at the conso level.

You could assume that either:
1/ The OP doesn't know that dividends are eliminated in consolidated financial statements, or
2/ The question concerns presentation in separate financial statements.

Curious to know why you assumed scenario 1/

[Marek Muc]

It seems to me that EUR 700k of distribution wasn't a dividend but a repayment of initial investment, so I would account for it as DR cash / CR investment without P&L impact

https://ifrscommunity.com/knowledge-bas ... -dividends

[Leo]

I assumed scenario 1 because of ifrs5 why OP would have asked about discontinuing activities in the PL of the sub if it's individual financial statements ?

[Marek Muc]

I don't see any reference to P&L of the sub in OP's questions...

[Nine2230]

Thank you for the answer.

The distribution was made by deliberating the accumulated profits of previous years. For this reason I accounted for dividends into P&L. In my view, only if i'm distributing
previously paid-in capital, I have no impact in P&L.

Is it correct?

[Marek Muc]

in general your approach is correct, but here it is evident that this dividend was paid from profits earned before this company became a subsidiary, so it isn't a dividend income for the new parent, but repayment of initial investment

in any case, I wouldn't consider dividend income from a subsidiary as a discontinued operation under IFRS 5 as it doesn't "represent a separate major line of business or geographical area of operations" from the perspective of separate financial statements of the parent (it is, so to say, outside of the parent)

[Nine2230]

Hi Marek,

It's clear. Thank you very much.