Hi everyone! Would appreciate very much if anyone could shed some light on the case below:

A acquired 100% of B (total 40 shares) for $50k in 2019. Say on 1 Sep 2020, B issued another 60 shares for $80k to a third party, making its total number of shares become 100. As such, A's shareholding in B has dropped from 100% to 40%, and A has lost control of B but retained significant influence. I understand this is a deemed disposal and we need to recognise any gain/loss on deemed disposal of the subsidiary B in Conso P&L.

Some info:

Investment cost in B = $50k

Carrying value of B's net assets on acquisition = $30k (assuming carrying value = fair value)

Goodwill on acquisition = $20k

Carrying value of B's net assets on 1 Sep 2020 (before share issue) = $70k

Carrying value of B's net assets on 1 Sep 2020 (after share issue) = $150k ($70k + $80k)

NCI on 1 Sep 2020 = 0

The calculation of Group's gain/loss on disposal is as follows:

Fair value of consideration received (nil value as it is a deemed disposal)

+) Fair value of investment retained

-) Share of net assets of subsidiary

+) Goodwill

My questions:

(1) Since it is a deemed disposal, there is no any gain/loss on disposal to be recognised in A's (parent) individual financial statements, right?

(2) What is the definition of "Fair value of investment retained"? Assuming all carrying value approximates to their fair value, I'm getting puzzled as to how should I derive this "carrying value" of investment retained?

- Is it based on the remaining interest of B's net assets after disposal? Then the carrying value of investment retained will be $60k (40% x $150k), resulting in a group's gain on disposal of $10k (Value of investment retained $60k - Share of B's net assets $70k + Goodwill $20k)?

- Or, is it based on the carrying value of investment in B after disposal. Then the carrying value of investment retained will be $66k (investment cost $50k + share of post-acquisition profit $16k (40% x $40k)), resulting in a gain on disposal of 16k?

Should both methods above give the same result? Maybe I am missing something, hope someone can help. Thank you!

## Partial Disposal of Subsidiary (to Associate)

### Re: Partial Disposal of Subsidiary (to Associate)

(1) yes, though it's not covered in IAS 27, so other approaches are possible

(2) it's fair value retained, not carrying value. Assuming that the 2020 share issue by B was on market terms, the easiest approach is as follows: B issued 60 shares for $80k, so fair value of 1 share is 1.33. You've got 40 shares, so the fair value of your interest retained = ca $53k. But it's probably less than that due to control premium, so you can deduct 20% of control premium if you want to be a bit more sophisticated

(2) it's fair value retained, not carrying value. Assuming that the 2020 share issue by B was on market terms, the easiest approach is as follows: B issued 60 shares for $80k, so fair value of 1 share is 1.33. You've got 40 shares, so the fair value of your interest retained = ca $53k. But it's probably less than that due to control premium, so you can deduct 20% of control premium if you want to be a bit more sophisticated

### Re: Partial Disposal of Subsidiary (to Associate)

(2) I see. So we take the value of new share issued as fair value

What if it's not on market terms?

What if it's not on market terms?

### Re: Partial Disposal of Subsidiary (to Associate)

then welcome to more advanced valuation techniques

https://ifrscommunity.com/knowledge-bas ... air-value/

https://ifrscommunity.com/knowledge-bas ... air-value/

### Re: Partial Disposal of Subsidiary (to Associate)

Thank you very much Marek. after reading it halfway through, I think i won't apply this advanced valuation

Btw about the computation of the "carrying value of investment retained", what do you advise?

One more question here, do you think can we apply Purchase Price Allocation method to measure the FV of investment retained also? If this PPA method is ok, after we mark up the investment retained from carrying value to FV, do we need to consider the subsequent accounting impact of that FV adjustment?

Eg. One of B's property value is increased from carrying value $50k to FV $60k, its remaining useful life is 10 years: Should we make additional depreciation (ie. $10k/10years x 40% ) on the FV adjustment when applying the equity method?

Btw about the computation of the "carrying value of investment retained", what do you advise?

One more question here, do you think can we apply Purchase Price Allocation method to measure the FV of investment retained also? If this PPA method is ok, after we mark up the investment retained from carrying value to FV, do we need to consider the subsequent accounting impact of that FV adjustment?

Eg. One of B's property value is increased from carrying value $50k to FV $60k, its remaining useful life is 10 years: Should we make additional depreciation (ie. $10k/10years x 40% ) on the FV adjustment when applying the equity method?

### Re: Partial Disposal of Subsidiary (to Associate)

yes, you need to recognise additional depreciation on FV adjustments

https://ifrscommunity.com/knowledge-bas ... djustments

https://ifrscommunity.com/knowledge-bas ... djustments