When a parent sells a controlling interest in a subsidiary but retains a non-controlling interest, how is the transaction accounted for under IFRS 10?
An advanced Group Accounting question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
If control is lost, the subsidiary is deconsolidated: all assets, liabilities, and NCI are derecognized. The retained interest is remeasured to fair value at the date control is lost. The gain or loss on disposal is recognized in profit or loss, calculated as the difference between the fair value of consideration received plus the fair value of retained interest, and the carrying amount of the subsidiary's net assets plus NCI. The retained interest is subsequently accounted for as an associate or financial asset.
WHAT INTERVIEWERS LISTEN FOR
- ✓Deconsolidate subsidiary
- ✓Remeasure retained interest to fair value
- ✓Gain/loss in P&L
- ✓Subsequent accounting depends on level of influence
COMMON MISTAKES
- ✗Continuing to consolidate at old percentage
- ✗Not remeasuring retained interest to fair value
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RELATED QUESTIONS
- Explain capital consolidation under IFRS 3.
- How do you account for a step acquisition where control is achieved?
- How do you handle a mid-year change in consolidation scope (acquisition or disposal)?
- How do you account for non-controlling interests (NCI)?
- When is proportionate consolidation used?
- Walk me through the mechanics of a step acquisition, including increases after control is obtained.