Investment in Subsidiary recoverable amount

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LindsayM
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Investment in Subsidiary recoverable amount

Post by LindsayM »

Hi. I have an investment in subsidiary which is measured at cost in the seperate financial statements. The investment has never been impaired and as at 31 Dec 2020 (Year end) and not consolidated. The company and the investee are in the process of winding up (non going concern). Given this situation, the recoverable amount of the investment in subsidiary has been estimated and it is higher than the cost. My question is how to account for the difference in the net recoverable amount and the cost in the balance sheet and PnL of the investor company.
Thanks
pub_acco
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Re: Investment in Subsidiary recoverable amount

Post by pub_acco »

If the investor prepares a financial statement on a going concern basis, it can just state the investment at cost in accordance with IAS 27 because the recoverable amount exceeds the cost. Otherwise, I have no idea how to prepare a financial statement under IFRS on a basis other than the going concern basis.
LindsayM
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Re: Investment in Subsidiary recoverable amount

Post by LindsayM »

Thank you for your reply. But the investor is preparing its financial statements on a non going concern basis.
JRSB
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Re: Investment in Subsidiary recoverable amount

Post by JRSB »

If it's higher than cost, then leave it as cost? maybe it's a current asset now

do you mean how to record the net assets distribution once the subsidiary is wound up and the remaining cash is transferred up? it's a distribution to the parent and the excess over cost is a gain.
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JRSB
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Re: Investment in Subsidiary recoverable amount

Post by JRSB »

PS what do you mean 'not consolidated'?
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Marek Muc
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Re: Investment in Subsidiary recoverable amount

Post by Marek Muc »

if going concern no longer applies, you need to develop your own measurement basis for all assets and liabilities, e.g. liquidation value for assets

see last page:
https://cdn.ifrs.org/content/dam/ifrs/n ... .pdf?la=en
JRSB
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Re: Investment in Subsidiary recoverable amount

Post by JRSB »

Think the question is about the parent of a company that isn't going concern?
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LindsayM
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Re: Investment in Subsidiary recoverable amount

Post by LindsayM »

Both the parent and the subsidiary are on a non going concern basis. I am actually preparing the financial statements of the parent. For eg in the parent balance sheet, there is Investment in subsidiary, at cost $20,000. No impairment was recognised previously.
On the subsidiary side, the directors are planning to distribute $50,000 to the parent, being the residual assets after paying the liabilities.
In the parent balance sheet, given that it is on a non going concern basis, the asset should be measured at its net recoverable amount, ie $50,000.
The questions are:
1. Is it permissible to show the investment in subsidiary at $50,000 (when the cost is only $20,000)?
2. If yes to #1, how we should present the difference of $30,000 (50k less 20k) in the PnL
3. Which IAS/IFRS it relates to.

Thanks for your help so far.
pub_acco
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Re: Investment in Subsidiary recoverable amount

Post by pub_acco »

IFRS doesn't provide a specific guidance for a non-going concern FS, so you have to develop and justify your own basis, as Marek pointed out.

Btw, is it common or practicable to prepare a serious FS on a non-going concern basis? What I've seen in practice is just to prepare a statutory FS on a going concern basis as usual, disclosing the intention of liquidation in the footnotes, and to provide stakeholders at the same time with an estimate of residual asset value as a kind of pro forma information.
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Marek Muc
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Re: Investment in Subsidiary recoverable amount

Post by Marek Muc »

@pub_acco: but then do they say that those statutory FS are prepared under IFRS even if going concern assumption no longer applies?
pub_acco
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Re: Investment in Subsidiary recoverable amount

Post by pub_acco »

Technically yes, but it was rather like putting a boilerplate statement of compliance with IFRS. Liquidation is the very last moment of a company and at that stage, there are only a few stakeholders left and none of them cares about FS any longer. Even a company that filed bankruptcy has to prepare FS on a going concern basis to find a sponsor or to spin off viable businesses.
LindsayM
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Re: Investment in Subsidiary recoverable amount

Post by LindsayM »

Thank you guys. I should go in the way pub_accro suggested.
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