IFRS 10 - For De-Consolidation

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ray105
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IFRS 10 - For De-Consolidation

Post by ray105 »

Hi,

Background

Company A wholly owned Company B.

Company B's Financial Position - Total Assets 15 mil, Total Equity negative 20 mil (included a huge accumulated losses of 21 mil, share capital 1 mil), Total liabilities 35 mil.

Company B did not do well, and having cash flow issue, there is a creditor going to sue Company B for no payment of invoices, and if Company B does not make any payment after that, it will be ended up to the creditor liquidation process.

Question
1. If Company B is in liquidation process, the management would not have any more control over Company B as the control would all be transferred to the liquidator, so do I de-consolidate the Company B when the liquidator take over it?

2. Inside the total assets, there is about 12 mil of the ROU assets arising from a rental contract, and 13 mil of the lease liabilities. There is no corporate guarantee given to this contract, so if I de-consolidated Company B, am I considered as discharge from all the liabilities from the Company B?
JRSB
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Re: IFRS 10 - For De-Consolidation

Post by JRSB »

In the UK the liquidator is appointed and the Board members are replaced with liquidators but the shareholders stay the same; the liquidators can only act to realise assets for creditors and distribute excess to the shareholder.
ray105
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Re: IFRS 10 - For De-Consolidation

Post by ray105 »

Yes, it works the same the liquidator in my country. The liquidator will be in charge of everything and generally the board has no power to change the direction of the liquidator.

Therefore based on IFRS 10 rules, Company A seems like no more control over the entity, Company also has no rights to affect the interest and return from the Company B.

That's why am wondering if we should de-consolidate Company B in Company A when performkng the group consolidation.
JRSB
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Re: IFRS 10 - For De-Consolidation

Post by JRSB »

They still have rights to returns from the business though - it's back to the definition of control I guess.
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Marek Muc
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Re: IFRS 10 - For De-Consolidation

Post by Marek Muc »

Re. 1: https://ifrscommunity.com/knowledge-bas ... -covenants

Re.2 I would treat those items the same way as other assets and liabilities of the subsidiary
Leo
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Re: IFRS 10 - For De-Consolidation

Post by Leo »

I found something here as well :

https://library.croneri.co.uk/cch_uk/iast/ifrs10-201105

"An investor does not have power over an investee, even though the investor holds the majority of the voting rights in the investee, when those voting rights are not substantive. For example, an investor that has more than half of the voting rights in an investee cannot have power if the relevant activities are subject to direction by a government, court, administrator, receiver, liquidator or regulator."
JRSB
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Re: IFRS 10 - For De-Consolidation

Post by JRSB »

Depends who appointed the liquidator? A court on behalf of creditors, or a voluntary liquidation etc
Leo
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Re: IFRS 10 - For De-Consolidation

Post by Leo »

Mmmm, good point, anyway, the idea is that control is key.
JRSB
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Re: IFRS 10 - For De-Consolidation

Post by JRSB »

Does a liquidation business (including some of the big accounting firms) consolidate their liquidator clients then?
Leo
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Re: IFRS 10 - For De-Consolidation

Post by Leo »

I really don't think so... but the nature is different. I think you should separate consulting firms from the government. Big 4 firms, they are providing a consulting assistance, which is different from the government who took control of the company under liquidation.

In France for example, if company A, which belongs to a group, is under liquidation :

In statutory accounts of the parent :
1. The investments are fully depreciated
2. If in the statut of the company A, it states that the parent have the obligation to cover company A's losses or liabilities, Parent should book a provision which is equal to the net asset of company A which is negative.

I think, in consolidation, it's possible to de consolidate company A, but still shows the following :
1. Investment in company A
2. depreciation of company A
3. provision to covers the losses and liabilities

Because those are in the books of parent A.

Usually, depreciation and provision are eliminated at consolidation level if you consolidate company A, but since you deconsolidate company A and company A is still not liquidated yet, but under protection of the government, you should not eliminate any depreciation and provision performed by the parent related to company A.

Does it make sense ?
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