Financial accounting icab chapter 14 group accounts disposals

© The Institute of Chartered Accountants in England and Wales, March 2009 519
Contents
chapter 14
Group accounts: disposals
Introduction
Examination context
Topic List
1 Introduction
2 Treatment of disposal in parent company's
own financial statements
3 Full disposal of a subsidiary
4 Partial disposal of a subsidiary: retention of
control
significant influence
6 Partial disposal of a subsidiary: retention of no
influence
7 Disposal of an associate
Summary and Self-test
Technical reference
Answers to Self-test
Answers to Interactive questions

Financial accounting
520 © The Institute of Chartered Accountants in England and Wales, March 2009
Introduction
Learning objectives Tick of
Account for the complete and partial disposal of a subsidiary in the parent's books and in the
group accounts
Account for the complete and partial disposal of an associate in the parent's books and in the
group accounts
Explain how the underlying principles of group accounts are applied in accounting for
disposals
Specific syllabus references for this chapter are: 1g, 3d,e.
Practical significance
So far, we have been looking at the circumstances in which one entity acquires an investment in another
entity. However, the decision to dispose of an investment is an equally important decision. A company may
decide to dispose of an investment for a number of reasons, including:
The need to generate cash
The fact that the investment does not fit in with future strategic plans
Underperformance of the investment
This chapter considers the accounting treatment of the disposal of a subsidiary or associate.
Stop and think
What kinds of strategic decisions might lead to the disposal of an investment?
Working context
Where a subsidiary has been disposed of there are a number of key issues which the accountant will need
to consider. The most important of these considerations will include establishing the date of disposal and
the net assets of the subsidiary at the disposal date. The disposal must be appropriately accounted for and
disclosed.
Syllabus links
This topic is introduced in Financial Accounting and is also relevant to the Financial & Corporate Reporting
paper. More complex aspects are covered at the Advanced Stage.

GROUP ACCOUNTS: DISPOSALS
14
Examination context
Examination commentary
Preparation of consolidated financial statements represents 35% of the syllabus and disposals of subsidiaries
and associates forms part of this. This topic could be examined in either the written test or the short-form
question section of the paper. Short-form questions are likely to focus on the calculation of the group profit
or loss on disposal. Written test questions are more likely to focus on the impact of the disposal on the
consolidated financial statements as a whole.
In the examination candidates may be required to:
Prepare consolidated financial statements including the effects of the disposal of a subsidiary or an
associate
Prepare extracts to the consolidated financial statements including the calculation of the group profit
or loss on disposal of a subsidiary or an associate
Explain the principles behind the treatment of the disposal of a subsidiary or an associate.

1 Introduction
Section overview
An entity may dispose of all or some of its shares in a subsidiary.
1.1 Disposal possibilities
When a group disposes of all or part of its interest in a subsidiary this needs to be reflected in the parent's
individual financial statements and in the group financial statements.
The disposal may be:
A full disposal i.e. the entire shareholding is sold
A partial disposal i.e. some interest is retained in the entity
Partial disposals could include the following situations:
Retention of control i.e. the entity remains a subsidiary
Retention of significant influence i.e. the entity becomes an associate
Retention of no influence i.e. the entity becomes a trade investment
Similarly a group may dispose of an associate. It may dispose of all of its interest or retain a small trade
investment.
Both full disposal and partial disposals of subsidiaries and associates are examinable in the Financial
Accounting syllabus.
2 Treatment of disposal in parent company's own
financial statements
Section overview
A profit or loss will be calculated by comparing the sale proceeds with the carrying amount of the
proportion of the investment disposed of.
2.1 Recording the disposal
In the individual financial statements of the parent company the investment in the subsidiary or associate
will have been recorded as follows:
Balance sheet
Non-current asset investment (normally at cost)
Income statement
Dividend income receivable from the subsidiary or associate
When all or part of the investment is sold this will be treated as a non-current asset disposal. This will
usually give rise to a profit or loss on disposal in the parent's individual financial statements.
The disposal will be recorded as follows:
CU CU
DR Cash/receivables (proceeds) X
CR Investment in S or A (Carrying amount –usually cost) X
DR or CR Income statement loss/profit on disposal X or X

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3 Full disposal of a subsidiary
Section overview
The subsidiary disposed of will not be included in the consolidated balance sheet.
In the consolidated income statement.
– The results of the subsidiary should be time-apportioned and consolidated up to the date of
disposal
– The minority interest will be based on the subsidiary’s results up to the date of disposal
– The group profit or loss on disposal should be recognised
In the consolidated statement of changes in equity the balances relating to the minority interest in the
subsidiary sold will be removed.
3.1 Consolidated balance sheet
The consolidated balance sheet (like any other balance sheet) shows the financial position at a particular
point in time (i.e. the balance sheet date.) As a result, if a subsidiary has been disposed of during the year,
that subsidiary will not be reflected in the consolidated balance sheet. A consolidated balance sheet
will only need to be prepared if the parent has other subsidiaries and will be prepared as though the
subsidiary disposed of had never existed.
3.2 Consolidated income statement
When a subsidiary is disposed of, its resources cease to be controlled by the group at the date of disposal.
Prior to that point, they are under the group's control and therefore the results of the subsidiary up to
the disposal date must be included in the consolidated income statement. So there will always be a
consolidated income statement in the year of disposal, even if the parent has no other subsidiaries. The
consolidated income statement will include:
S's results up to the date of disposal
If there is a minority interest in the subsidiary, their share of S's results up to the date of
disposal
The profit or loss arising on the disposal
3.3 Group profit/loss on disposal
The profit or loss on disposal is the difference between the sales proceeds and the parent's total
investment in the subsidiary, i.e. the values in respect of the subsidiary which would appear in a
consolidated balance sheet prepared immediately before the disposal. These values are the sum of:
P's share of S's net assets at the date of disposal. These net assets will be the net assets at the
start of the year in which the disposal takes place, plus/minus the net asset increase/decrease arising
through S's profit/loss in the period up to the disposal and minus any dividends paid by S in that
period; and
The goodwill acquired in the business combination with S, to the extent that it has not already
been recognised as an expense as a result of impairment reviews.

So the calculation is as follows:
CU CU
Proceeds X
Less:
Share of net assets at disposal
Net assets brought forward X
Profit/(loss) to date of disposal X/(X)
Dividends paid (see points to note 1) (X)
X
P's share (X)
X
Less:
Carrying amount of goodwill at date of disposal
Cost of investment X
Share of net assets at acquisition (X)
Goodwill at acquisition X
Impairment to date (X)
(X)
Profit/(loss) on disposal X/(X)
Points to note
1 The retained reserves/net assets at the date of disposal of the subsidiary should be calculated
deducting only those dividends to which the parent is entitled i.e. dividends paid up to the date of
disposal (and dividends declared if the shares are sold ex-dividend).
2 In examination questions you should assume that a subsidiary which is fully disposed of is a separately
reportable business segment and meets the BFRS 5 Non-current Assets Held for Sale and Discontinued
Operations definition of a discontinued activity (the presentation of discontinued operations was
discussed in Chapter 4). As such the disposal should be disclosed in accordance with BFRS 5.
These learning materials adopt the approach illustrated in BFRS 5 1G example 11. This includes a one line
entry in the income statement which incorporates both the subsidiary's results up to the date of disposal
and the group profit or loss arising on disposal. You should adopt this approach in the examination.
Interactive question 1: Profit/loss on disposal [Difficulty level: Exam standard]
Champion Ltd has held a 70% investment in Hercules Ltd for many years. On 31 December it disposed of
all of this investment. Further details are as follows:
CU
Cost of investment 2,000
Hercules Ltd's net assets at the date of acquisition 1,900
Sale proceeds 2,100
Hercules Ltd's net assets at the date of disposal 2,400
Requirement
Calculate the profit/loss on disposal:
(a) In Champion Ltd's individual accounts
(b) In the consolidated accounts assuming that in respect of goodwill
(i) There has been no impairment
(ii) There has been an impairment loss of CU470
Fill in the proforma below.

14
Solution
(a) Champion Ltd's separate financial statements
CU
Proceeds
Cost
Profit on disposal
(b) Consolidated financial statements
No impairment Impairment of CU470
CU CU CU CU
Proceeds
Less: Share of net assets at date of disposal
Less: Carrying amount of goodwill at date
of disposal
Cost of investment
Share of net assets at acquisition
Goodwill at acquisition
Impairment to date
Profit/(loss) on disposal
See Answer at the end of this chapter.
3.4 Consolidated statement of changes in equity
There will almost always be a need for a consolidated statement of changes in equity (CSCE) in the year of
disposal (the only exception would be if the parent had no other subsidiaries and there had been no
minority interest in the subsidiary now disposed of). In relation to the subsidiary disposed of, the CSCE will
contain the following in the minority interest column:
S's current period profit (to the date of disposal) attributable to the minority interest. This reflects the
minority interest amount shown in the consolidated income statement
The minority interest in S's share capital and retained earnings brought forward, i.e. the minority
interest as shown in the previous period's consolidated balance sheet
A deduction for the total of the above amounts. This deduction must be made because at the
end of the current period there will be no minority interest in relation to S, which has now been
disposed of
Point to note
There is no need to make a similar deduction in the CSCE for P's share of S's post-acquisition retained
earnings brought forward plus P's share of S's current period profits. That deduction has in effect already
been made by the profit or loss on disposal calculation.
Worked example: Full disposal
Ben Ltd bought 80% of the share capital of Bill Ltd for CU950,000 on 1 October 20X1. At that date Bill
Ltd's retained earnings stood at CU510,000.
Ben Ltd has several other subsidiaries, which are wholly owned.

The balance sheets at 30 September 20X8 and the summarised income statements to that date are given
below:
Balance sheets
Ben Ltd Bill Ltd
Group
CU'000 CU'000
Property, plant and equipment 2,050 600
Investment in Bill Ltd 950 –
Current assets 2,700 1,300
5,700 1,900
Share capital (CU1 ordinary shares) 2,000 300
Retained earnings 2,500 1,100
4,500 1,400
Current liabilities 1,200 500
5,700 1,900
Income statements
CU'000 CU'000
Profit before interest and tax 1,400 180
Income tax expense (400) (50)
Profit for the period 1,000 130
Statement of changes in equity (extract)
CU'000 CU'000
Profit for the period 1,000 130
Retained earnings at 30 September 20X7 1,500 970
Retained earnings at 30 September 20X8 2,500 1,100
No entries have been made in the accounts for any of the following transactions.
Assume that profits accrue evenly throughout the year. To date no impairment losses on goodwill have
been recognised. The Box Ltd group figures exclude any amounts for Bill Ltd.
Requirement
Prepare the consolidated balance sheet, income statement and statement of changes in equity extract at 30
September 20X8 on the basis that Ben Ltd sells its entire holding in Bill Ltd for CU2,100,000 on 30
September 20X8.
You should assume that the disposal is a discontinued operation in accordance with BFRS 5 Non-current
Assets Held for Sale and Discontinued Operations.
Solution
Ben and Bill
Consolidated balance sheet as at 30 September 20X8
CU'000
Property, plant and equipment 2,050
Current assets (2,700 + 2,100) 4,800
6,850
Share capital 2,000
Retained earnings (W4) 3,650
5,650
Current liabilities 1,200
6,850

14
Consolidated income statement for the year ended 30 September 20X8
CU'000
Continuing operations
Profit before tax 1,400
Income tax expense (400)
Profit for the period from continuing operations 1,000
Discontinued operations
Profit for the period from discontinued operations (678 + 130) (W1 + W2) 808
Profit for the period 1,808
Attributable to:
Equity holders of Ben Ltd ( ) 1,782
Minority interest (20% 130) 26
1,808
Consolidated statement of changes in equity (extract)
Ben Ltd Minority
Retained interest
earnings (Bill Ltd)
CU'000 CU'000
Profit for the year 1,782 26
Eliminated on disposal of subsidiary (26 + 254 (W5)) – (280)
1,782 (254)
Balance at 30 September 20X7 (W3 + W5) 1,868 254
Balance at 30 September 20X8 (W4) 3,650 –
WORKINGS
(1) Profit of Bill Ltd for year to disposal
CU'000
PAT 130
12/12 130
(2) Profit on disposal of Bill Ltd
CU'000 CU'000
Sale proceeds 2,100
Less: Share of net assets at disposal (1,400 80%) (1,120)
980
Less: Carrying amount of goodwill at date of disposal
Cost of investment 950
Share of net assets at acquisition (80% (300 + 510)) (648)
(302)
678
(3) Retained earnings brought forward
CU'000
Ben Ltd 1,500
Bill Ltd (80% x (970 –510)) 368
1,868

(4) Retained earnings carried forward
CU'000
Ben Ltd 2,500
Profit on disposal (2,100 –950) 1,150
3,650
(5) MI b/f
CU'000
Share capital 300
Retained earnings b/f 970
1,270
20% 254
Point to note
The profit on disposal figure in the retained earnings carried forward balance is the profit which would
appear in Ben Ltd's own income statement.
This adjustment is required as Ben Ltd's own financial statements do not reflect the disposal. (We are told
that no entries have been made in respect of this transaction.)
Interactive question 2: Full disposal [Difficulty level: Exam standard]
Daring Ltd has a number of subsidiaries, one of which, Glory Ltd, was sold in the current year. The draft
accounts for the Daring Group (being Daring Ltd and the subsidiaries it still has) and Glory Ltd at 31 March
20X1 are as follows:
Balance sheets
Daring Glory
Group Ltd
CUm CUm
Intangibles –goodwill 4,000 –
Investment in Glory Ltd at cost 3,440 –
Sundry assets 42,450 9,500
49,890 9,500
Share capital (CU1 ordinary shares) 8,000 3,000
Retained earnings 11,000 3,500
Attributable to equity holders of Daring Ltd 19,000 6,500
Minority interest 12,000 –
Equity 31,000 6,500
Liabilities 10,000 3,000
Sales proceeds account 8,890 –
49,890 9,500
Income statements
Daring Glory
Group Ltd
CUm CUm
Profit before tax 12,950 3,800
Income tax expense (5,400) (2,150)
Profit after tax 7,550 1,650
Attributable to:
Equity holders of Daring Ltd 5,050
Minority interest 2,500
7,550

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Statements of changes in equity
Daring Group Glory Ltd
Attributable to equity holders of
Daring
Ltd
Share Retained Minority
capital earnings Total interest Total
CUm CUm CUm CUm CUm CUm
Profit for the year – 5,050 5,050 2,500 7,550 1,650
Balance b/f 8,000 5,950 13,950 9,500 23,450 4,850
Balance c/f 8,000 11,000 19,000 12,000 31,000 6,500
Daring Ltd acquired 90% of Glory Ltd when the retained earnings of Glory Ltd were CU700m. In an earlier
accounting period an impairment loss of CU20m was recognised in relation to the goodwill arising on the
acquisition of Glory Ltd.
On 31 December 20X0 Daring Ltd sold all its shares in Glory Ltd for CU8,890m. Daring Ltd has debited
cash and credited a sales proceeds account in the balance sheet with this amount, as it is unsure what
entries are needed.
Requirement
Prepare the Daring Group consolidated balance sheet, consolidated income statement and consolidated
statement of changes in equity for the year ended 31 March 20X1.
You should assume that the disposal of Glory Ltd constitutes a discontinued operation in accordance with
BFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Solution
Daring Group
Consolidated balance sheet at 31 March 20X1
CUm
Intangibles –goodwill
Sundry assets
Share capital (CU1 ordinary shares)
Retained earnings
Attributable to equity holders of Daring Ltd
Minority interest
Equity
Liabilities
Consolidated income statement for the year ended 31 March 20X1
CUm
Profit before tax (W2)
Income tax expense (W2)
Profit for the period from continuing operations
Profit for the period from discontinued operations (W4 and W5)
Profit for the period
Attributable to:
Equity holders of Daring Ltd ( )
Minority interest

Consolidated statement of changes in equity for the year ended 31 March 20X1
Daring Ltd
CUm CUm CUm CUm CUm
Profit for the year
Eliminated on disposal
of subsidiary (W9)
Balance b/f (W7 and W8)
Balance c/f
WORKINGS
(1) Group structure
(2) Consolidation schedule for CIS
Daring
Group Consol
CUm CUm
Profit before tax
Tax
(3) Minority interests in Glory Ltd for CIS
CUm
(4) Profit of Glory Ltd for year to disposal
CUm
(5) Profit on disposal of Glory Ltd for CIS
CUm CUm
Sale proceeds
Less: Share of net assets at disposal
Cost of investment
Impairment to date
(6) Net assets at disposal
CUm
Share capital
Retained earnings b/f
Profit for year to disposal (W4)

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(7) Group retained earnings b/f for CSCE
CUm
Daring Group
Glory Ltd
Goodwill impairment to date
(8) Minority interest b/f for CSCE
CUm
(9) Minority interest eliminated on disposal
CUm
4 Partial disposal of a subsidiary: retention of control
Section overview
In the consolidated balance sheet the subsidiary should be consolidated based on the year-end
holding.
In the consolidated income statement:
– The minority interest should be time apportioned reflecting the pre and post disposal stake.
– The group profit or loss on disposal should be recognised and separately presented
In the CSCE an amount will be added representing the increase in the minority interest in the net
assets at the date of disposal.
4.1 Subsidiary to subsidiary
A parent entity may sell some of its shares in a subsidiary but still retain control. For example, a 90% stake
could be reduced to a 60% stake.
Point to note
For disclosure purposes you should assume that this does not constitute a discontinued operation.
4.2 Accounting treatment
The accounting treatment would be as follows:
Consolidated balance sheet
– As the parent company still holds a subsidiary at the balance sheet date the assets and liabilities of
the subsidiary should be consolidated as normal.
– The minority interest should be calculated based on the year-end holding.
Consolidated income statement
– As the parent has held a subsidiary throughout the period the revenues and expenses should be
consolidated as normal (i.e. 100% for the whole year).

– The change in % holding is reflected in the minority interest calculation. This should be
calculated to reflect the pre and post disposal situation.
– The group profit or loss should be calculated and recognised.
Worked example: Minority interest
At the start of its year, on 1 January 20X7, Pine Ltd owned 90% of Sycamore Ltd. On 30 June 20X7 Pine
Ltd disposed of 1/3 of its shares in Sycamore Ltd. Sycamore Ltd has a profit after tax for the year ended 31
December 20X7 of CU600,000.
In the consolidated income statement the minority interest will be calculated as follows:
Minority interest
CU
CU600,000 x 10% x 6/12 = 30,000
CU600,000 x 40% x 6/12 = 120,000
150,000
Point to note
In the above worked example Pine Ltd disposed of 1/3 of its 90% shareholding i.e. 30% of the company.
Pine Ltd's holding was therefore reduced from 90% to 60% increasing the minority interest from 10% to
40%.
4.3 Group profit or loss
The group profit or loss is calculated in essentially the same way as for the full disposal (see section 3.3
above). Care must be taken, however, to ensure that the correct proportions of net assets and goodwill
are brought in to the calculation.
Worked example: Partial disposal: profit/loss on disposal
Leeds Ltd has held a 90% investment in York Ltd for many years. On 31 December it disposed of 1/3 of its
investment. Further details are as follows:
CU’000 CU’000
York Ltd net assets at acquisition 1,900
Sale proceeds 900
York Ltd net assets at disposal 2,400
There has been no impairment of goodwill.
The profit or loss in the group accounts would be calculated as follows:
CU’000 CU’000
Proceeds 900
Less: Share of net assets at disposal disposed of (30% x 2,400) (720)
180
Less: Carrying amount of goodwill at disposal relating to disposal
Share of net assets at acquisition (90% x 1,900) (1,710)
Goodwill at acquisition 790
Relating to disposal (790 x 1/3) (263)
Loss on disposal (83)

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30% of the net assets at disposal are brought in to the above calculation as the net assets relate to the
company as a whole.
1/3 of the goodwill is brought in to the above calculation as the goodwill only relates to the 90% share in
York Ltd originally held by Leeds Ltd.
In other words, Leeds Ltd has disposed of 30% of York Ltd but 1/3 of its investment.
Point to note
The profit or loss on disposal will normally be presented separately on the face of the consolidated
income statement.
Consolidated income statement (extract)
CU'000
Profit from operations X
Loss on sale of interest in subsidiary (83)
Profit before tax X
Income tax expense (X)
Profit for period X
4.4 Consolidated statement of changes in equity
In relation to the subsidiary partly disposed of, the CSCE will contain the following in the minority interest
column:
S's current period profit attributable to the minority interest.
The minority interest in S's share capital and retained earnings brought forward i.e. the
minority interest as shown in the previous period's consolidated balance sheet.
An adjustment representing the increase in the minority interest (due to the part disposal) in the
net assets at the date of the change in stake. This must be added because the minority interest
at the end of the current period will be based on the year-end position.
Worked example: Adjustment representing increase in the minority interest
Apple Ltd owned 80% of Orange Ltd on 1 January 20X7 when the net assets of Orange Ltd were
CU675,000. Apple Ltd disposes of one quarter of its shares in Orange Ltd on 31 December 20X7 when the
net assets of Orange Ltd are CU750,000. The net profit of Orange Ltd for the year is CU75,000.
The minority interest, which increases from 20% to 40% during the year as Apple Ltd’s shareholding
decreases from 80% to 60%, would be reflected in the consolidated statement of changes in equity as
follows:
Minority
interest
CU'000
Profit for year (75,000 x 20% x 12/12) 15,000
Partial disposal of subsidiary (20% x 750,000) 150,000
165,000
Balance at 31 December 20X6 (675,000 x 20%) 135,000
Balance at 31 December 20X7 (750,000 x 40%) 300,000

Section overview
In the consolidated balance sheet the investment is accounted for as an associate based on the year-
end holding.
In the consolidated income statement:
– The results are consolidated up to the date of disposal
– The equity method is used for the post-disposal period
In the CSCE the balances relating to the minority interest in the subsidiary sold will be removed.
5.1 Subsidiary to associate
A parent entity may sell some of its shares in a subsidiary but still retain significant influence. For
example, an 80% stake could be reduced to a 40% stake.
Point to note
For disclosure purposes you should assume that this does not constitute a discontinued operation.
– The investment is accounted for using the equity method based on the year-end holding.
– This reflects the pre and post disposal situation therefore the subsidiary's results are time
apportioned and:
Consolidated up to the date of disposal
Equity accounted for in the post-disposal period.
– The group profit or loss on disposal should be calculated and recognised and is normally
separately presented on the face of the income statement (see section 4.3 above).
Consolidated statement of changes in equity
In relation to the subsidiary partly disposed of, the CSCE will contain the following in the minority interest
column:
– S's current period profit (to the date of disposal) attributable to the minority interest. This
reflects the minority interest shown in the consolidated income statement.
– The minority interest in S's share capital and retained earnings brought forward i.e.
the minority interest shown in the previous period's consolidated balance sheet.
– A deduction for the total of the above amounts. This deduction must be made because at the
end of the current period there will be no minority interest in relation to the subsidiary as it is
now an associate.

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6 Partial disposal of a subsidiary: retention of no
influence
Section overview
In the consolidated balance sheet the investment is frozen at its level under the equity method.
In the consolidated income statement
– The results are consolidated up to the date of disposal
In the CSCE the balances relating to the minority interest in the subsidiary sold will be removed.
6.1 Subsidiary to trade investment
A parent entity may sell a majority of its shares in a subsidiary such that it holds a small investment,
without retaining control or significant influence.
For example, a 90% stake could be reduced to a 10% stake.
Point to note
For disclosure purposes you should assume that this does constitute a discontinued operation in
accordance with BFRS 5.
– The investment is recorded in the consolidated balance sheet at its value under the equity
method, i.e. the group share of net assets and goodwill retained by the group at the date of
disposal.
– The investment remains in the consolidated balance sheet at this value unless impaired i.e. the
value is not updated at each subsequent year-end.
– The results of the subsidiary are time apportioned and consolidated up to the date of disposal.
– After disposal only dividend income is recognised.
– The group profit or loss on disposal is included in the presentation of the profit or loss from
discontinued operations as required by BFRS 5.
Consolidated statement of changes in equity
In relation to the subsidiary partly disposed of, the CSCE will contain the following in the minority
interest column:
– S's current period profit (to the date of disposal) attributable to the minority interest. This
reflects the minority interest shown in the consolidated income statement.
– The minority interest in S's share capital and retained earnings brought forward i.e.
the minority interest shown in the previous period's consolidated balance sheet.
– A deduction for the total of the above amounts. This deduction must be made because at the
end of the current period there will be no minority interest in relation to the subsidiary as it is
now a trade investment.

Point to note
This study manual makes the working assumption that the trade investment in the consolidated
balance sheet should be recorded at its equity method value at the date of disposal. The recognition
and measurement of equity investments which are not accounted for as subsidiaries or associates, in
accordance with BAS 39 Financial Instruments: Recognition and Measurement, will be covered in more
detail in the Financial Reporting syllabus.
Interactive question 3: Partial disposal: impact on financial statements
[Difficulty level: Intermediate]
Requirement
Based on the information provided in Worked example: Full disposal (see section 3 above) prepare the
consolidated balance sheet, consolidated income statement and extracts from the consolidated statement of
changes in equity at 30 September 20X8 in the following circumstances:
(a) Ben Ltd sells one quarter of its holding in Bill Ltd for CU380,000 on 30 June 20X8.
(b) Ben Ltd sells one half of its holding in Bill Ltd for CU1,350,000 on 30 June 20X8, and the remaining
holding is to be dealt with as an associate.
(Work to the nearest CU'000.)
Fill in the proforma below.
Solution
(a) Partial disposal (subsidiary to subsidiary) mid year
CU’000
Property, plant and equipment
Goodwill
Current assets
Retained earnings
Minority interest
Current liabilities

14
CU’000
Profit from operations
Profit on sale of interest in subsidiary
Profit before tax
Income tax expense
Attributable to:
Equity holders of Ben Ltd
Minority interest
Ben Ltd Minority
Retained interest
earnings (Bill Ltd)
CU’000 CU’000
Profit for the year
Partial disposal of subsidiary
Balance at 30 September 20X7
WORKINGS
(1) Group structure
CU’000 CU’000
Sale proceeds
Cost of investment
Re disposal

(3) Minority interest in Bill Ltd for CIS
CU'000 CU'000
(4) Retained earnings/MI brought forward
As per worked example 1,868 254
CU'000
Ben Ltd
Add: Profit on disposal
Bill Ltd
(6) MI c/f
CU'000
Share capital
Retained earnings
%
(b) Partial disposal (subsidiary to associate) mid year
CU'000
Property, plant and equipment
Investments in associates
Current assets
Retained earnings
Current liabilities
CU'000
Profit from operations
Profit on sale of interest in subsidiary
Share of profit of associates
Profit before tax
Income tax expense
Attributable to:
Equity holders of Ben Ltd
Minority interest

14
Ben Ltd Minority
Retained interest
earnings (Bill Ltd)
CU'000 CU'000
Profit for the year
Eliminated on disposal of subsidiary
WORKING
(1) Group structure
(2) Investments in associates
CU'000
Cost of associates
Share of post acquisition retained earnings
CU'000 CU'000
Sale proceeds
Cost of investment
Re disposal
CU'000
CU'000 CU'000
CU'000
Ben Ltd
Add: Profit on disposal
Bill Ltd

7 Disposal of an associate
Section overview
The principles involved are similar to those relating to the disposal of a subsidiary.
7.1 Full disposal
– As the parent no longer holds an investment in the associate at the year-end the associate will
not be recognised in the consolidated balance sheet.
– Up to the date of disposal the profits of the associate will be recognised in the consolidated
income statement using the equity method of accounting.
– The group profit or loss on disposal will be calculated as per the disposal of a subsidiary (see
section 3.3 above) and will usually be separately presented on the face of the income statement,
immediately underneath the share of the associate’s profit for the pre-disposal part of the period.
7.2 Partial disposal
A parent may sell some of its shares in an associate such that it loses significant interest but still retains a
small trade investment.
– At the year end the parent company simply holds a trade investment. The investment in the
former associate is brought in to the consolidated balance sheet at its equity method value, i.e.
the group share of net assets and goodwill retained by the group at the date of disposal.
– Up to the date of disposal the profits of the associate will be recognised in the consolidated
income statement using the equity method.
– After the disposal the parent will record any dividends received, which are paid out of profits
earned after the change of status, as investment income.
– The group profit or loss on disposal will be calculated and recognised and will usually be
separately presented on the face of the income statement, immediately underneath the share of
the associate’s profit for the pre-disposal part of the period.
Worked example: Disposal of an associate
An investor has had an investment of 40% in an associate for a number of years. During the year the group
disposes of ¾ of its investment and no longer has significant influence. The following information is
available:
CU
Cost of 40% investment 220,000
Goodwill on original acquisition 20,000
Proceeds received 210,000
Net asset value of associate at date of sale 620,000
The goodwill was capitalised on the acquisition of the associate and has not been impaired.

14
In the consolidated balance sheet the former associate would be valued as follows:
CU
Remaining share of net assets (620,000 x 10%) 62,000
Goodwill retained (20,000 x 1/4) 5,000
67,000
In the consolidated income statement the group profit on disposal would be calculated as follows:
CU
Proceeds 210,000
Less: Net assets disposed of (620,000 x 30%) (186,000)
Goodwill associated with disposal (20,000 x ¾) (15,000)
9,000

Summary and Self-test
Summary
CBS CIS CSCE
Full disposal of S Reflect year end
position - no
subsidiary
Consolidate results to
date of disposal
MI based on S’s results
up to date of disposal
Recognise group profit
or loss (combine with
S’s results to date of
disposal)
Remove balances
relating to MI in S
sold
Partial disposal of
S: control retained
Consolidate based
on year end
position
Consolidate results for
the entire period
Time apportion MI
or loss separately
Will include an
adjustment
representing the
increase in the
minority interest in
the net assets at the
date of change
Partial disposal of
S: retention of
Equity account for
investment
Consolidate up to date
of disposal
Use equity method for
post disposal period
or loss separately
MI balances relating
to subsidiary sold
will be deducted
Partial disposal of
S: trade investment
held
Include investment
at its value under
the equity method
Consolidate up to date
of disposal (then only
record dividends
received)
or loss separately
MI balances relating
to subsidiary sold
will be deducted
Full disposal of A Reflect year end
position –no
associate
Equity method up to
date of disposal
or loss separately
Partial disposal of
A: trade
investment held
Include investment
at its value under
the equity method
Equity method up to
date of disposal (then
only record dividends
received)
or loss separately

14
Self-test
Answer the following questions.
1 On 1 January 20X1 Rainbow Ltd acquired all of Zippy Ltd's 1,000 CU1 ordinary shares. The goodwill
acquired in the business combination was CU10,000 of which 40% had been written off as impaired by
the end of 20X2.
On 1 January 20X3 Rainbow Ltd sold all the shares for CU140,000 when Zippy Ltd's retained earnings
amounted to CU112,000.
What is the profit on disposal which should be included as part of the profit for the period from
discontinued operations figure in the consolidated income statement of Rainbow Ltd?
A CU15,000
B CU21,000
C CU27,000
D CU28,000
2 Yogi Ltd has held an 80% investment in Bear Ltd for many years. On 31 December 20X6 it disposed of
all of its investment. Details for the acquisition and disposal are as follows.
CU'000
Fair value of Bear Ltd's net assets at acquisition (reflected in Bear Ltd's books) 9,000
Sale proceeds on 31 December 20X6 9,940
Goodwill acquired in the business combination has been fully written off as a result of impairment
reviews.
The summarised balance sheet of Bear Ltd on 31 December 20X6 showed the following.
CU'000
Called up share capital 3,000
Retained earnings 7,350
Equity 10,350
What is the profit/(loss) on disposal of the shares in Bear Ltd that will be included as part of the profit
for the period from discontinued operations figure in the consolidated income statement of Yogi Ltd
for the year ended 31 December 20X6?
A (CU410,000)
B (CU1,220,000)
C CU1,480,000
D CU1,660,000
3 The Bill Group disposed of its 60% interest in Ben Ltd after owning it for five years. Original cost was
CU120,000 and goodwill acquired in the business combination was CU50,000. Sales proceeds were
CU250,000, and this has been posted to a suspense account in Bill Ltd's individual accounts. Ben Ltd
had net assets of CU100,000 on disposal and 50% of the original amount of the goodwill had been
written off as impaired.
What is the profit on disposal which will be included as part of the profit for the period from
discontinued operations figure within the consolidated income statement of the Bill Group?
A CU100,000
B CU130,000
C CU165,000
D CU185,000

4 On 1 September 20X1 the Villa Group acquired 70% of Charlton Ltd's 1,000 CU1 ordinary shares.
The goodwill acquired in the business combination was CU1,200.
On 1 September 20X5 the Villa Group sold all the shares for CU50,000 when Charlton Ltd's retained
earnings were CU89,000.
What is the loss on disposal which will be included as part of the profit for the period from
discontinued operations figure in the consolidated income statement of the Villa group?
A CU13,000
B CU13,500
C CU14,000
D CU14,200
5 The Gill Group disposed of the following mid way through the financial year.
Tracey Ltd (100% subsidiary) for CU150,000
Debbie Ltd (55% subsidiary) for CU70,000
Goodwill acquired in the business combinations has been fully written off as a result of impairment
reviews. The retained earnings of the companies are as follows.
At acquisition At disposal
Tracey Ltd CU70,000 CU100,000
Debbie Ltd CU25,000 CU40,000
The consolidated retained earnings of the remaining Gill Group, including the profit made on the
disposal of the investments in the year were CU230,000 at 31 December 20X6.
What will be the amount for consolidated retained earnings included in the consolidated balance sheet
for the Gill Group as at 31 December 20X6?
A CU230,000
B CU260,000
C CU266,000
D CU275,000
6 Tom Ltd acquired 75% of Bill Ltd on 1 January 20X4. The goodwill acquired in the business
combination was CU125,000.
On 1 January 20X9 Tom Ltd disposed of its entire holding in Bill Ltd for CU820,000. On this date the
net assets of Bill Ltd amounted to CU790,000 and goodwill impairment write offs to date totalled to
CU31,250.
What is the profit/(loss) on disposal which should be included as part of the profit for the period from
discontinued operations figure in the consolidated income statement of Tom Ltd?
A CU(63,750)
B CU102,500
C CU196,250
D CU133,750
7 Chelsea Ltd has held an 80% investment in Hammersmith Ltd for a number of years. On 31 December
20X7 it disposed of ¼ of its investment. Details of the original acquisition and disposal are as follows:
CU'000
Fair value of Hammersmith Ltd's net assets at acquisition
(reflected in Hammersmith's books) 10,800
Sale proceeds on 31 December 20X7 11,928
50% of the goodwill acquired in the business combination has been written off as a result of
impairment reviews.

14
The summarised balance sheet of Hammersmith Ltd on 31 December 20X7 showed the following:
CU'000
Called up share capital 3,600
Equity 12,420
What is the profit on disposal of the shares in Hammersmith Ltd that will be included as part of the
profit for the period from discontinued operations figure in the consolidated income statement of
Chelsea Ltd for the year ended 31 December 20X7?
CU'000
A 8,796
B 9,390
C 9,417
D 9,714
8 Maple Ltd has had a 30% investment in an associate, Ash Ltd for a number of years. The goodwill was
capitalised on acquisition of the associate and has not been impaired.
During the year the group disposed of 50% of its investment and could no longer exercise significant
influence. The following information is available:
CU
Goodwill on acquisition 15,000
Proceeds received 157,500
Net asset value of associate at date of sale 620,000
What is the profit/(loss) on disposal of the shares in Ash Ltd that will be included in the consolidated
income statement of Maple Ltd for the year ended 31 December 20X7?
A CU57,000
B CU64,500
C CU75,000
D CU(160,000)
9 The Blair Group purchased 75% of Brown Ltd a number of years ago for CU5,000,000. The goodwill
arising on that business combination was CU1,250,000. On 31 December 20X7 the Blair Group
disposed of 80% of its shares in Brown Ltd for CU7,500,000. On this date the net assets of Brown Ltd
amounted to CU8,200,000 and the amount of goodwill impairment to date was CU375,000.
In the consolidated balance sheet of the Blair Group at 31 December 20X7 at what amount will the
remaining investment in Brown Ltd be stated?
A CU750,000
B CU1,230,000
C CU1,361,000
D CU1,405,000

10 The Greatheed Group purchased a 70% investment in Gaveston Ltd on 1 January 20X4 for
CU8,500,000. At that date the retained earnings of Gaveston Ltd stood at CU9,800,000. On 31
December 20X7 the Greatheed Group disposed of half of its investment in Gaveston Ltd for
CU5,200,000. Share capital and retained earnings of Gaveston Ltd at that date were as follows.
CU'000
Share capital 1,000
15,500
In the consolidated balance sheet of Greatheed Ltd for the year ended 31 December 20X7 at what
amount would the remaining interest in Gaveston Ltd be shown?
CU’000
A 4,250
B 5,190
C 5,895
D 10,145
11 On 1 September 20X4 the Moorefields Group acquired 40% of Davenport Ltd’s 1,000 CU1 ordinary
shares. The goodwill was capitalised on acquisition of this associate and 50% has been written off as a
result of impairment.
During the year ended 31 December 20X7 the Moorefields Group disposed of all of its shares in
Davenport Ltd. The following information is available.
CU
Cost of original investment 198,000
Goodwill on acquisition 18,000
Proceeds received on disposal 189,000
Davenport Ltd’s net assets at date of sale 744,000
What is the loss on disposal of Davenport Ltd that will be included in the consolidated income
statement of the Moorefields Group for the year ended 31 December 20X7?
A CU9,000
B CU108,600
C CU117,600
D CU126,600
12 PARABLE LTD
Parable Ltd is a holding company with a number of subsidiaries. The consolidation for the year ended
31 December 20X8 has been carried out to include all subsidiaries except Story Ltd. Story Ltd has
been 80% owned by Parable Ltd since 20X2, at which date Story Ltd's retained earnings amounted to
CU50,000, but on 30 June 20X8 Parable Ltd sold all of its shares in Story Ltd.
Details are as follows.
CU
Cost of original investment (80,000 out of 100,000 CU1 ordinary shares) 150,000
Goodwill acquired in the business combination fully recognised as an
expense as a result of impairment reviews 30,000
Sales proceeds 500,000
Because Parable Ltd is unsure how to deal with its investment in Story Ltd in the 20X8 consolidation,
it has not yet consolidated Story Ltd into the group financial statements.

14
Income statements for the year ended 31 December 20X8 are set out below.
Parable Ltd Story
group Ltd
CU CU
Profit from operations 875,500 325,600
Sales proceeds on disposal of Story Ltd 500,000 –
Profit before tax 1,375,500 325,600
Income tax expense (405,000) (102,500)
Profit for the year 970,500 223,100
Attributable to
Equity holders of Parable Ltd 870,300
970,500
The Parable Ltd group and Story Ltd had retained earnings brought forward of CU1,926,300 and
CU326,400 respectively. Other minority interests brought forward were CU507,500.
Requirements
(a) Prepare the consolidated income statement and the retained earnings and minority interest
columns for the statement of changes in equity for the Parable Ltd group for the year ended 31
December 20X8 in so far as the information is available. (8 marks)
(b) Redraft the above on the basis that
(i) Parable Ltd sells only a quarter of its shares in Story Ltd for CU200,000 and that the
disposal does not constitute a discontinued operation in accordance with BFRS 5.(5 marks)
(ii) Parable Ltd sells all but a 20% holding of its shares in Story Ltd, for CU400,000, retains
significant influence and that the disposal does not constitute a discontinued operation in
accordance with BFRS 5. (5 marks)
(18 marks)
13 ARBITRARY LTD
Arbitrary Ltd holds 80% of the ordinary shares of Contrary Ltd which it purchased five years ago, on 1
July 20X0, for CU175,000. On 1 July 20X5 Arbitrary Ltd sold all of these shares and used the
proceeds (CU212,000) to purchase 65% of the ordinary shares of Enthusiast Ltd on the same date.
Share capital of Contrary Ltd and Enthusiast Ltd has remained constant for many years at CU100,000
and CU200,000 respectively. Net assets of Contrary Ltd and Enthusiast Ltd were as follows.
Contrary Ltd Enthusiast Ltd
At At At
acquisition 1 January 1 January
20X5 20X5
CU CU CU
Net assets 187,000 150,000 280,000
Income statements and statements of changes in equity for all three companies for the year ended 31
December 20X5 were as follows.

Income statements
Arbitrary Contrary Enthusiast
Ltd Ltd Ltd
CU CU CU
Revenue 1,926,500 521,600 792,400
Cost of sales (1,207,200) (386,200) (405,900)
Gross profit 719,300 135,400 386,500
Distribution costs (207,500) (79,200) (198,200)
Administrative expenses (192,600) (26,100) (107,100)
Interim dividend received from Contrary Ltd 8,000 – –
Profit before tax 327,200 30,100 81,200
Income tax expense (110,000) (9,500) (27,500)
Profit after tax 217,200 20,600 53,700
Statements of changes in equity
Retained earnings
Arbitrary Contrary Enthusiast
Ltd Ltd Ltd
CU CU CU
Net profit for the period 217,200 20,600 53,700
Interim dividends on ordinary shares (paid 1 May 20X5) (50,000) (10,000) –
Final dividends on ordinary shares
(declared 1 December 20X5) – (5,000) –
167,200 5,600 53,700
Balance brought forward 671,300 50,000 80,000
Balance carried forward 838,500 55,600 133,700
No entries have been made in Arbitrary Ltd's income statement relating to the sale of Contrary Ltd.
In an earlier accounting period an impairment loss of CU12,700 was recognised in relation to the
goodwill arising on the acquisition of Contrary Ltd.
Requirements
(a) Prepare the consolidated income statement and the retained earnings and minority interest
columns for the statement of changes in equity for Arbitrary Ltd for the year ended 31
December 20X5 in so far as the information is available. (15 marks)
Note. You should assume that the disposal of Contrary Ltd constitutes a discontinued operation
in accordance with BFRS 5 Non-current assets held for sale and discontinued operations.
(b) Calculate the profit on disposal that would be shown in the individual accounts of Arbitrary Ltd
and explain how and why this differs from group profit on disposal. (4 marks)
(c) Briefly discuss the concepts of control and ownership in the context of this disposal. (4 marks)
(23 marks)
Now, go back to the Learning Objectives in the Introduction. If you are satisfied you have achieved these
objectives, please tick them off.

14
Technical reference
For a comprehensive Technical reference section, covering all aspects of group accounts (except group cash
flow statements) see Chapter 15.

Answers to Self-test
1 B
CU
Sale proceeds 140,000
Less: Share of net assets at disposal (1,000 + 112,000) (113,000)
Carrying amount of goodwill (10,000 60%) (6,000)
21,000
2 D
CU'000
Sale proceeds 9,940
Less: Share of net assets at disposal (80% 10,350) (8,280)
1,660
If any initial goodwill has been fully written off, net assets at disposal date can be used in this
calculation.
3 C
CU
Carrying amount of goodwill (50,000 50%) (25,000)
165,000
4 D
CU
Less: Share of net assets at disposal (70% (1,000 + 89,000)) (63,000)
Carrying amount of goodwill (1,200)
(14,200)
5 A As the profit on disposal has been included within the remaining Gill Group retained earnings, no
further adjustment is necessary.
6 D
CU
Carrying amount of goodwill (125,000 –31,250) (93,750)
133,750
7 C
CU'000
Less: 20% x 12,420 (2,484)
25% x 108 (see below) (27)
9,417
CU'000
Goodwill
Share of NA at acquisition (80% x 10,800) (8,640)
216
Impaired (50%) (108)
108

14
8 A
CU
Proceeds 157,500
NA disposed of (15% x 620,000) (93,000)
Goodwill (15,000 x 50%) (7,500)
57,000
9 D
CU’000
Share of net assets at disposal (15% x CU8.2m) 1,230
Goodwill re remaining shares (15/75 x (1,250 –375)) 175
1,405
10 C
CU’000
Cost of investment (50% x 8,500) 4,250
Increase in retained earnings (14,500 –9,800) x 35% 1,645
5,895
11 C
CU
Proceeds 189,000
Less: Net assets disposed of (744,000 x 40%) (297,600)
Goodwill not yet written off (18,000 x 50%) (9,000)
(117,600)
12 PARABLE LTD
(a) Consolidated income statement for the year ended 31 December 20X8
CU
Income tax expense (405,000)
Profit for the period from discontinued operations (111,550 + 69,640) (W2, W3) 181,190
Attributable to
Equity holders of Parable Ltd ( ) 529,180
Minority interest (W4) 122,510
651,690
Consolidated statement of changes in equity for the year ended 31 December 20X8
(extracts)
Equity holders
of Parable Ltd
Retained Minority
earnings interest
CU CU
Net profit for the period 529,180 122,510
Eliminated on disposal of subsidiary (85,280 (W6) + 22,310 (W4)) – (107,590)
529,180 14,920
Balance brought forward (W5 and W6) 2,117,420 592,780
Balance carried forward 2,646,600 607,700

(b) (i) Consolidated income statement for the year ended 31 December 20X8
CU
Operating profit (875,500 + 325,600) 1,201,100
Profit on sale of interest in subsidiary (W3) 92,410
Profit before tax 1,293,510
Income tax expense (405,000 + 102,500) (507,500)
Attributable to:
786,010
Consolidated statement of changes in equity for the year ended 31 December
20X8 (extracts)
Equity holders
of Parable Ltd
Retained Minority
earnings interest
CU CU
Partial disposal of subsidiary (W7) – 107,590
Balance brought forward (W5, W6) 2,117,420 592,780
(ii) Consolidated income statement for the year ended 31 December 20X8
CU
Operating profit (875,500 + (325,600 6/12)) 1,038,300
Profit on sale of interest in subsidiary (W3) 77,230
Share of profit of associate (223,100 6/12 20%) 22,310
Profit before tax 1,137,840
Income tax expense (405,000 (102,500 6/12)) (456,250)
Attributable to:
681,590
Consolidated statement of changes in equity for the year ended 31 December
20X8 (extracts)
Equity holders
of Parable Ltd
Retained Minority
earnings interest
CU CU
Eliminated on disposal of subsidiary (as (a)) – (107,590)
559,080 14,920
Balance brought forward (W5 and W6) 2,117,420 592,780

14
WORKINGS
(1) Group structure
Parable Ltd group Parable Ltd group Parable Ltd group
(2) Profit for year to disposal
CU
PAT of S Ltd 223,100
6/12 = 111,550
(3) Profit on disposal of operations
Partial disposal Partial disposal
Complete disposal (subsidiary retained) (associate retained)
(a) (b)(i) (b)(ii)
CU CU CU CU CU CU
Sale proceeds 500,000 200,000 400,000
Net assets at 1 January 20X8 426,400
Profit to 30 June 20X8 (W2) 111,550
537,950 537,950 537,950
80% (430,360) 20% (107,590) 60% (322,770)
69,640 92,410 77,230
(4) Minority interest for year
No
subsidiary Subsidiary
retained retained
(a) and (b)(ii) (b)(i)
CU CU
Story Ltd (223,100 6/12 20%)
((223,100 6/12 20%) + (223,100 6/12 40%)) 22,310 66,930
Other 100,200 100,200
122,510 167,130
(5) Retained earnings b/f
CU
Parable Ltd group 1,926,300
Add Story Ltd (80% (326,400 –50,000)) 221,120
Less Goodwill impairment to date (30,000)
2,117,420
(6) Minority interest b/f
CU
Story Ltd ((100,000 + 326,400) 20%) 85,280
Other 507,500
592,780

(7) Partial disposal of subsidiary
CU
Net assets at date of disposal (100,000 + 326,400 + (6/12 223,100)) 537,950
20% 107,590
13 ARBITRARY LTD
(a) Consolidated income statement for the year ended 31 December 20X5
CU
Revenue (W2) 2,322,700
Cost of sales (W2) (1,410,150)
Gross profit 912,550
Distribution costs (W2) (306,600)
Administrative expenses (W2) (246,150)
Income tax expense (W2) (123,750)
Profit for the period from discontinued operations (10,300 + 79,060) (W3 + W4) 89,360
Attributable to
Equity holders of Arbitrary Ltd ( ) 313,952
325,410
Consolidated statement of changes in equity for the year ended 31 December 20X5
(extracts)
Equity holders
of Arbitrary Ltd
Retained Minority
earnings interest
CU CU
Added on acquisition of subsidiary (W8) – 107,397
Eliminated on disposal of subsidiary (W9) – (32,060)
Interim dividend on ordinary shares (50,000) –
263,952 86,795
Balance brought forward (W6) + (W7) 629,000 30,000
Balance carried forward 892,952 116,795
(b) Calculation of profit in individual accounts of Arbitrary Ltd
CU
Less Cost (175,000)
Profit 37,000
The different calculations of profit on disposal reflect the different way in which the subsidiary
(Contrary Ltd) is accounted for in the individual and consolidated accounts.
In the individual balance sheet of Arbitrary Ltd Contrary Ltd is carried at cost of CU175,000. The
profit on disposal is therefore the sale proceeds less this cost.
In the consolidated financial statements the cost of Contrary Ltd is replaced with its underlying
net assets and with goodwill acquired in the business combination. The profit on disposal is
therefore based on sale proceeds less the percentage of net assets being sold (here 80%) less the
unimpaired goodwill which is being sold in full (as it only ever related to the 80% share of net
assets acquired).

14
(c) Application of control and ownership ideas
Control
Up to 1 July 20X5 Arbitrary Ltd owns 80% of Contrary Ltd and therefore controls it. So the
consolidated income statement should include 100% of Contrary Ltd's profits up to that date.
After 1 July 20X5 Arbitrary Ltd no longer controls Contrary Ltd. Its results should be excluded
from the consolidated income statement for the last six months of the year and also from the
consolidated balance sheet.
This treatment reflects the fact that once Contrary Ltd has been sold its resources are no longer
under group control.
Ownership
For the first six months of the year 100% of Contrary Ltd's profits are included in the
consolidated income statement. However, 20% of its profits are owned by the minority interest
and this has to be deducted in arriving at the group's share of profit (CU20,600 x 6/12 x 20%).
When the disposal occurs the group is selling its ownership interest in the net assets and its
goodwill. Therefore the group profit on disposal is calculated from the point of view of
ownership.
WORKINGS
(1) Group structure
(2) Consolidation schedule
Arbitrary Enthusiast
Ltd Ltd Consol
6/12
CU CU CU
Revenue 1,926,500 396,200 2,322,700
C of S (1,207,200) (202,950) (1,410,150)
Distrib cost (207,500) (99,100) (306,600)
Admin exp (192,600) (53,550) (246,150)
Tax (110,000) (13,750) (123,750)
PAT 26,850
(3) Profit for year to disposal
CU
PAT of C Ltd 20,600
6/12 10,300
Arbitrary Ltd
Contrary Ltd Enthusiast Ltd
65%
(acq 1 July 20X5
6/12 in)
80%
(sold 1 July 20X5
6/12 in)

(4) Profit on disposal of Contrary Ltd operations
CU CU
Net assets at 1 January 20X5 150,000
Profit to 1 July 20X5 (W3) 10,300
Dividends paid (10,000)
150,300
80% (120,240)
91,760
Less: Carrying amount of goodwill
Share of net assets at acquisition (80% 187,000) (149,600)
25,400
Impairment to date (12,700)
(12,700)
79,060
(5) Minority interest in year
CU
Contrary Ltd (20% x 10,300 (W3)) 2,060
Enthusiast Ltd (35% x 26,850 (W2)) 9,398
11,458
(6) Retained earnings b/f
CU
Arbitrary Ltd 671,300
Contrary Ltd (80% x (50,000 –(187,000 –100,000)) (29,600)
Goodwill impairment to 31 December 20X4 (12,700)
629,000
(7) Minority interest b/f
CU
Contrary Ltd (150,000 20%) 30,000
(8) Minority interest added on acquisition of subsidiary
CU
Enthusiast Ltd ((200,000 + 80,000 + 26,850 (W2)) 35%) 107,397
(9) Minority interest eliminated on disposal of subsidiary
CU
Contrary Ltd
B/f (W7) 30,000
Current year (W5) 2,060
32,060

14
Answers to Interactive questions
Answer to Interactive question 1
(a) Champion Ltd's individual accounts
CU
Proceeds 2,100
Cost (2,000)
Profit on disposal 100
(b) Consolidated accounts
No impairment Impairment of CU470
CU CU CU CU
Proceeds 2,100 2,100
Less: Share of net assets at date of disposal (70% 2,400) (1,680) (1,680)
420 420
Less:Carrying amount of goodwill at date
of disposal
Cost of investment 2,000 2,000
Share of net assets at acquisition (1,330) (1,330)
(70% 1,900)
Goodwill at acquisition 670 670
Impairment to date – (470)
(670) (200)
Profit/(loss) on disposal (250) 220
Daring Group
Consolidated balance sheet at 31 March 20X1
CUm
Intangibles –goodwill 4,000
Sundry assets 42,450
46,450
Share capital (CU1 ordinary shares) 8,000
Retained earnings (from CSCE) 16,450
Attributable to equity holders of Daring Ltd 24,450
Equity 36,450
Liabilities 10,000
46,450
Consolidated income statement for the year ended 31 March 20X1
CUm
Profit before tax (W2) 12,950
Income tax expense (W2) (5,400)
Profit for the period from discontinued operations (1,238 + 3,321) (W4 and W5) 4,559
Attributable to:
Equity holders of Daring Ltd ( ) 9,485
Minority interest (2,500 + 124 (W3)) 2,624
12,109

Consolidated statement of changes in equity for the year ended 31 March 20X1
Daring Ltd
CUm CUm CUm CUm CUm
Profit for the year – 9,485 9,485 2,624 12,109
Eliminated on disposal
of subsidiary (W9) – – – (609) (609)
– 9,485 9,485 2,015 11,500
Balance b/f (W7 and W8) 8,000 6,965 14,965 9,985 24,950
Balance c/f 8,000 16,450 24,450 12,000 36,450
WORKINGS
(1) Group structure
Daring
Glory
90% for 9/12 of year
(2) Consolidation schedule for CIS
Daring Group Consol
CUm CUm
Profit before tax 12,950 12,950
Tax (5,400) (5,400)
Tutorial note. In this case the consolidation schedule only includes the results of the parent group as
those of Glory Ltd are to be treated as discontinued. (See working 4.) In an examination question it is
likely that you will have to deal with another subsidiary still retained at the year end as well as the
company disposed of so this working will be required.
(3) Minority interests in Glory Ltd for CIS
CUm
1,238 (W4) 10% 124
(4) Profit of Glory Ltd for year to disposal
CUm
PAT 1,650
9/12 1,238
(5) Profit on disposal of Glory Ltd for CIS
CUm CUm
Sale proceeds 8,890
Less: Share of net assets at disposal (90% 6,088 (W6)) (5,479)
3,411
Share of net assets at acquisition (90% (3,000 + 700)) (3,330)
Impairment to date (20)
(90)
Profit on disposal 3,321

14
(6) Net assets at disposal
CUm
Share capital 3,000
Retained earnings b/f (4,850 –3,000) 1,850
Profit for year to disposal (W4) 1,238
6,088
(7) Group retained earnings b/f for CSCE
CUm
Daring Group 5,950
Glory Ltd (90% (1,850 –700)) 1,035
Goodwill impairment to date (20)
6,965
(8) Minority interest b/f for CSCE
CUm
Glory Ltd (4,850 10%) = 485 + other subsidiaries 9,500 9,985
(9) Minority interest eliminated on disposal
CUm
B/f amount 485 (W8) + current year 124 (W3) 609
(a) Partial disposal (subsidiary to subsidiary) mid year
CU'000
Goodwill (302-75) 227
2,877
Current assets (2,700 + 1,300 + 380) 4,380
7,257
4,997
Minority interest (W6) 560
5,557
Current liabilities (1,200 + 500) 1,700
7,257
CU'000
Profit from operations 1,580
Profit on sale of interest in subsidiary (W2) 31
Income tax expense (400 + 50) (450)
Attributable to:
1,161

Ben Ltd Minority
Retained interest
earnings (Bill Ltd)
CU'000 CU'000
Partial disposal of subsidiary – 273
1,129 306
Balance at 30 September 20X7 (W4) 1,868 254
Balance at 30 September 20X8 (W5 + W6) 2,997 560
WORKINGS
(1) Group structure
Ben plc
Bill Ltd
80% x 9/12
60% x 3/12
CU'000 CU'000
Sale proceeds 380
Less: Share of net assets at disposal ((300 + 970 + 9/12 130) 20%) (274)
106
Share of net assets at acquisition (80% (300 + 510)) (648)
Re disposal (1/4) (75)
31
CU'000 CU'000
20% 130 9/12 = 20
40% 130 3/12 = 13
33
CU000 CU000
As per Worked example 1,868 254
CU'000
Ben Ltd 2,500
Add: Profit on disposal (380 –(950 25%)) 143
2,643
Bill Ltd (60% (1,100 –510)) 354
2,997

14
(6) MI c/f
CU'000
Share capital 300
1,400
40% 560
(b) Partial disposal (subsidiary to associate) mid year
CU'000
Investments in associates (W2) 711
2,761
Current assets (2,700 + 1,350) 4,050
6,811
5,611
Current liabilities 1,200
6,811
CU'000
Profit from operations (1,400 + (9/12 180)) 1,535
Profit on sale of interest in subsidiary (W3) 652
Share of profit of associates (130 3/12 40%) 13
Income tax expense (400 + (9/12 50)) (438)
Attributable to:
1,762
Ben Ltd Minority
Retained interest
earnings (Bill Ltd)
CU'000 CU'000
Eliminated on disposal of subsidiary (19 + 254) (273)
1,743 (254)
Balance at 30 September 20X7 (W5) 1,868 254
Balance at 30 September 20X8 (W6) 3,611 –

WORKINGS
(1) Group structure
(2) Investments in associates
CU'000
Cost of associate (950 ½) 475
Share of post acquisition retained earnings (40% (1,100 –510)) 236
711
CU'000 CU'000
Sale proceeds 1,350
Less: Share of net assets at disposal (300 + 970 + (9/12 130)) 40% (547)
803
Share of net assets at acquisition (80% (300+510)) (648)
Re disposal (1/2) (151)
652
CU'000
20% 130 9/12 19
CU'000 CU'000
CU'000
Ben Ltd 2,500
Add: Profit on disposal (1,350 –(950 50%)) 875
3,375
Bill Ltd (40% (1,100 –510)) 236
3,611
Ben Ltd
Bill Ltd
80% x 9/12 40% x 3/12
Bill Ltd

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