IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

[neonng]

Hi~

May I ask for your help on the following situation?

Background:

An entity A would like to transfer all shares of its subsidiary (100% owned) to an entity B (lender-a related co.) for offsetting partial loan principal in arrears.

An entity A initially recognized the investment in subsidiary at cost.

In determining the amount of loan principal to be offset, both entities have agreed that the amount would be exclusively equal to the fair value of the subsidiary's net assets.

Therefore, entity A had revaluated its subsidiary's net assets and resulted in revaluation gain before the share transfer has been completed.

Questions:

How to recognize the revaluation gain in entity A's books?

Is it just simply to be recognized as "Gain on disposal of subsidiary" in P/L?

Or, is it more appropriate to be recognized as "Revaluation gain on NCA held for distribution to lender" in OCI?

Is the IFRS 5 applicable for this case? If yes, whether the following entries are correct?

At the date of revaluation

Dr. NCA held for distribution to lender
Cr. Investment in subsidiary (at cost)
Cr. OCI-Revaluation gain on NCA held for distribution to lender

At the date of share transfer

Dr. Amount due to related co. - Entity B
Cr. NCA held for distribution to lender

Dr. Revaluation Reserve
Cr. Retained Earning

Many Thx!

[Ketan Marwah]

Hi,

When a subsidiary is classified as ‘held for sale’, all its assets and liabilities fall under the ‘disposal group’, even if the parent company plans to maintain a non-controlling interest after the sale (IFRS 5.8A) but you don’t post necessarily the entire difference in OCI. Refer the measurement section here and fine tune your journals: https://ifrscommunity.com/knowledge-bas ... easurement

Revert if you have any query after having referred the linked page.

[Marek Muc]

I'd begin with the accounting policy for investments in subsidiaries. If they're held at cost, there won't be any revaluation gains above that original cost
https://ifrscommunity.com/knowledge-bas ... associates

[Ketan Marwah]

Quite right. If the investment is measured at cost prior to the held for sale classification then it is remeasured at the lower of cost and its fair value less costs to sell so there cannot be any re-measurement gain that would arise out of it.