call/put option to non controlling interests
Posted: 23 Jun 2022, 20:37
Hi guys, I'd like your opinion on the put and call option written by parent company to the holder of non controlling interest.
Put option :
I found an example here in page 22 :
https://www.grantthornton.global/global ... report.pdf
Parent P holds a 70% controlling interest in Subsidiary S. The remaining 30% is held by Entity Z. On 1.1.X1 P writes an option to Z which grants Z the right to sell its shares to Parent P on 31.12.X2 for CU 1,000. Parent P receives a payment of CU 100 for the option. The applicable discount rate for the put liability is determined to be 6%.
The accounting entry proposed is the following :
dr : cash 100 LCU
dr : equity 790 LCU (Gross amount according to IAS32)
cr : financial liability 890 LCU (present value of redemption amount according to IAS32)
For this I understand.
Call option :
Most of the literature I found is related to put option, but there is only one document I found related to written call option by parent company to holder of non controlling interest.
Take the example above : Parent P holds a 70% controlling interest in Subsidiary S. The remaining 30@ Is held by Entity Z. On 1.1.X1, P writes an call to Z which grants Z to buy its shares to parent P on 31.12.X2 for CU 1000. Parent P receives a payment of CU 100 for the option. The applicable discount rate for the put liability is determined to be 6%.
The only case I found is here :
https://www.mah.uk.com/wp-content/uploa ... option.pdf
The authors suggest the following :
Dr cash : 100 CU
Cr Financial liability : 90 CU
CR Amortised costs ???: 10 CU
And Financial liability is subsequently held at amortised cost
I'm really not sure of it, and most of all, why when it comes to call option I can't book a financial assets of 790 CU corresponding to "the present value of redemption amount according to IAS32" ??? does this only applies to financial liability ?
What do you think ?
Put option :
I found an example here in page 22 :
https://www.grantthornton.global/global ... report.pdf
Parent P holds a 70% controlling interest in Subsidiary S. The remaining 30% is held by Entity Z. On 1.1.X1 P writes an option to Z which grants Z the right to sell its shares to Parent P on 31.12.X2 for CU 1,000. Parent P receives a payment of CU 100 for the option. The applicable discount rate for the put liability is determined to be 6%.
The accounting entry proposed is the following :
dr : cash 100 LCU
dr : equity 790 LCU (Gross amount according to IAS32)
cr : financial liability 890 LCU (present value of redemption amount according to IAS32)
For this I understand.
Call option :
Most of the literature I found is related to put option, but there is only one document I found related to written call option by parent company to holder of non controlling interest.
Take the example above : Parent P holds a 70% controlling interest in Subsidiary S. The remaining 30@ Is held by Entity Z. On 1.1.X1, P writes an call to Z which grants Z to buy its shares to parent P on 31.12.X2 for CU 1000. Parent P receives a payment of CU 100 for the option. The applicable discount rate for the put liability is determined to be 6%.
The only case I found is here :
https://www.mah.uk.com/wp-content/uploa ... option.pdf
The authors suggest the following :
Dr cash : 100 CU
Cr Financial liability : 90 CU
CR Amortised costs ???: 10 CU
And Financial liability is subsequently held at amortised cost
I'm really not sure of it, and most of all, why when it comes to call option I can't book a financial assets of 790 CU corresponding to "the present value of redemption amount according to IAS32" ??? does this only applies to financial liability ?
What do you think ?