IAS28 - entity consolidated by equity method

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Leo
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IAS28 - entity consolidated by equity method

Post by Leo »

Hi,

I have one question.

Our company (Mother) has 40% in CHild A (associate consolidated in equity method). Child A has 80% in child B.

Mother => 40% Child A => 80% Child B

Child A does a consolidation (Child A + Child B). We presume that CHild A has nothing in its balance sheet except Child B and the net equity of child B is 1 000

So the consolidated statement of child A is

Assets 1 000
IIIIIIIIIIIIIIIIIIIIIIIIIIIIII
Equity parent 800
NCI 200


Now, I'm Mother, and I'll consolidate Child A by using the equity method, just presume that there is nothing in Mother's balance sheet except Child A, Whats do you think the FS of Mother should be, solution 1 or 2 ?

Solution 1 :

Assets 400
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
Equity attribute to parent 400

Solution 2 :

Assets 400
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
Equity attribute to the parent 320
NCI 80


Thank you for your help!
Jonny
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Re: IAS28 - entity consolidated by equity method

Post by Jonny »

I presume you are consolidating only 40% of the equity. The posting would be:

Investments accounted for using the equity method @ Equity attribute to the parent
Leo
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Re: IAS28 - entity consolidated by equity method

Post by Leo »

THank you !!!
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Marek Muc
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Re: IAS28 - entity consolidated by equity method

Post by Marek Muc »

Your question is valid but perhaps could be illustrated better?

You recognise the investment initially at cost (what you paid) and then the question is what share of P&L do you include in your P&L. I.e. total net income or net income attributable to owners of the parent. I would go for the latter as explained here:
https://ifrscommunity.com/knowledge-bas ... s-a-parent

In any case, you should not show any NCI in your consolidated financial statements as a result of applying equity method to Associate A.
Leo
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Re: IAS28 - entity consolidated by equity method

Post by Leo »

Thank you !!!
Leo
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Re: IAS28 - entity consolidated by equity method

Post by Leo »

Just one additional question :

In my case, what would be the amount of assets for the equity method company?

Would it be :

Solution A : 400€ which is 1000€ * 40% or

Solution B : 320€ which is 40% * 800€?



Thank you !
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Marek Muc
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Re: IAS28 - entity consolidated by equity method

Post by Marek Muc »

simplistically speaking 40% * 800, but in fact it depends on how much you paid for the shareholding in the first place
Leo
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Re: IAS28 - entity consolidated by equity method

Post by Leo »

Is not what my predecessor did.

What I've got it's 400 in assets and 320 in Equity of the group and 80 in NCI.

Problem is, we depreciated the whole company because of it's under liquidation. So, I've got 320 in P&L in non-recurring charges for 320€ and 80 in P&L from NCI.

Is that OK, I mean, could we argue or there is no discussion possible, we have to correct the assets from 400 to 320 and 80 in NCI have to be canceled as well?

I've read the link you sent me Marek, thank you very much. I understand that IFRS is silent on this topic, so it's there a possible way to not change everything?
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Marek Muc
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Re: IAS28 - entity consolidated by equity method

Post by Marek Muc »

you could argue that it's correct to have 400 in assets, but 400 in equity of the group as well

showing 80 as NCI makes no sense I'm afraid
Leo
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Re: IAS28 - entity consolidated by equity method

Post by Leo »

Thank you, Marek, but if I show 400 in assets, as the whole assets were depreciated to 0, the 80 which corresponds to part NCI should have been reclassified from P&L NCI to the P&L part group.

Thus, my P&L part group should have passed from 0 to a loss of 80€ right?

THank you.
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Marek Muc
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Re: IAS28 - entity consolidated by equity method

Post by Marek Muc »

I don't understand what you're trying to do. Do you want to make a retrospective correction of error or continue with current policy?
Leo
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Re: IAS28 - entity consolidated by equity method

Post by Leo »

Child A owned Child B at 100%.

Our Mother has Child A at 40% (Equity method), so indirectly 40% of CHild B.

In 2018, Child B has issued shares subscribed by another company for 20% of its shares with a premium (consideration paid superior to 20% of the net equity). After this operation, Child A owns Child B at 80%. And Child A had booked very lately the following entry as there was a dilution considered as a gain from sales of shares :

dt Equity 6M€
Cr Product P&L for dilution from capital increase 6M€

THis entry was not in the consolidated statements they sent us at first place.

After this operation, Our company had always 40% of Child A, but 32% of CHild B now. I agree that Mother should have in its assets 40% of the equity of the group of Child A consolidated statements.

But I don't know what to do with the additional accounting entry above (They told us that there was this journal entry missing in the consolidated statements they sent us).
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Marek Muc
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Re: IAS28 - entity consolidated by equity method

Post by Marek Muc »

and see here for equity transactions of associate/joint-venture:

https://ifrscommunity.com/knowledge-bas ... nt-venture
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