How would you account for the disposal of a subsidiary with a significant amount of goodwill, where the disposal results in a loss of control but the parent retains a non-controlling interest (NCI), and what are the implications for the group's financial statements?
An advanced Group Accounting question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
The disposal of a subsidiary resulting in a loss of control requires the deconsolidation of the subsidiary's assets, liabilities, and goodwill. The parent recognizes a gain or loss on the disposal, calculated as the difference between the fair value of the consideration received and the carrying amount of the subsidiary's net assets, including goodwill. The retained NCI is remeasured to its fair value, with any gain or loss recognized in profit or loss. It's crucial to update the group's financial statements to reflect the deconsolidation and the remeasurement of the NCI, ensuring that the group's equity and profit or loss are accurately represented.
WHAT INTERVIEWERS LISTEN FOR
- ✓Deconsolidate subsidiary's assets and liabilities
- ✓Recognize gain or loss on disposal
- ✓Remeasure retained NCI to fair value
COMMON MISTAKES
- ✗Failing to deconsolidate subsidiary's assets and liabilities
- ✗Incorrectly accounting for the remeasurement of NCI
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