Sale of Subsidiary with NCI

All topics related to IFRS Standards.
Post Reply
natgrace
Posts: 2
Joined: 30 Sep 2021, 09:34

Sale of Subsidiary with NCI

Post by natgrace »

Hi,

If you were looking to sell a subsidiary, parent company owns 90% (no goodwill, company was formed by our group) - what would the entries be for a "sale of subsidiary" versus "sale of assets".

I think for sale of subsidiary the balance sheet gets reversed with a gain/loss on sale going to P&L but there will obviously be some element to account for the 10% NCI

Cheers in advance,
Nat
JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: Sale of Subsidiary with NCI

Post by JRSB »

parent would just have gain or loss on disposal compared to carrying value of investment in subsidiary. so assume you're thinking about consolidated accounts?
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Sale of Subsidiary with NCI

Post by Leo »

If the company'd been created by parent, you do nothing, just run the consolidation, and the P&L in conso should be equal to the P&L in statutory.

Illustration :

Parent P :
Investments in Child A : 90
Bank :10

Issued capital social : -100

Child A :
Assets : 100
Capital : -100

Conso P :
Bank : 10
Assets : 100
Issuued capital social : -100
NCI : -10

Parent P sold Child A for 100.
Economic gain of the operation :
Net assets Child A : 100 * 90% = 90
Net gain of the operation : 100 -90 = 10

Parent P = Conso P :
Bank : 110
Issued capital social : -100
P&L : -10

So Your consolidated Equity will be increased by 10 from the P&L
And your consolidated NCI will decrease by 10 because of the derecognition/disposal.
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Sale of Subsidiary with NCI

Post by Marek Muc »

Leo wrote: 14 Jul 2022, 14:25 If the company'd been created by parent, you do nothing, just run the consolidation.
[...]
That's the curse of modern times, just flip a switch and the software will do the thinking for you ;)
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Sale of Subsidiary with NCI

Post by Leo »

Consolidation relies heavily on the efficiency of the software. An efficient software coupled with a good up stream parametrage, can cut the consolidation staff by half. But still you need people to analyse the figures and there are plenty of cases not in the textbook which need human intervention to adjust.

PS : In France, the conso software mostly used is SAP BFC (former Cartesis Magnitude), and Tagetik as a rising star.

What are the software used in your country ?
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Sale of Subsidiary with NCI

Post by Marek Muc »

of course but we're striving to understand underlying technical accounting in this community!
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Sale of Subsidiary with NCI

Post by Marek Muc »

on the original question:

Entries for a loss of control over a subsidiary are summarised here:
https://ifrscommunity.com/knowledge-bas ... of-control

If you sell underlying assets of the subsidiary, but without losing control of the entity, you won't derecognise NCI, so the gain on disposal in conso P/L will be higher by that amount (i.e. the value of NCI). On the other hand, you have to allocate that gain on disposal of assets to NCI as usual. As a result, when that subsidiary pays dividend, a larger portion of it (earned on disposal of assets) goes to the NCI.
Post Reply