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Deemed sale of subsidiary

28 August 2008 5,628 views No Comment
Dear all,
Good day!
A holding company had a subsidiary which is 100% owned. In 6 March 2006, the subsidiary issued new shares from $2 to $50,000 which changed the shareholdings from 100% to 40%.  As I read this is considered as deemed sale. The year ended of the holding company and the subsidiary is 31 December 2006.
These are my queries:
In view of the Holding company, how much is the equity take up considering the date of deemed sale?
In view of the holding company, how to compute for the gain/loss of the deemed sale of the subsidiary? How to compute for the cash inflow/outflow of the deemed sale of subsidiary? How is the accounting treatment and the related accounting entries? In consideration of the date of the deemed sale made during the accounting period.
Also, how to account the deemed sale in the cashflow statement?
The reply is highly appreciated.
Thank you
Hi Herma

Partial disposal of an investment in a subsidiary, it depends on whether control retained or lost

If control is retained, this is accounted for as an equity transaction with owners and cannot recognized gain or loss.

If the control is loss, the residual investments should be remeasured to fair value. Any difference between fair value and carrying amount is a gain or loss on this disposal.

This is factored into the calculation of gain or loss on disposal

Fair Value of the proceeds from the transaction that resulted in the loss of control

+        Fair value of any retained non-controlling equity investment in the former subsidiary at the date of control is lost

+        Carrying Value of the non-controlling interest in the former subsidiary (including accumulated OCI attributable to it) at the date control is lost

-         Carrying Value of the former subsidiary’s net assets at the control is lost

+/-      Any amounts included in OCI of equity that related to the subsidiary, that would required to be reclassified to profit or loss or another component of equity if the parent had disposed of the related assets and liabilities

Cash flow Statement

The company should present separately within investing activities the aggregate cash flow arising from disposals of subsidiary and should disclose

a. the total purchase or disposal consideration;

b. the portion of the purchase or disposal consideration discharged by means of cash and cash equivalents;

c. the amount of cash and cash equivalents in the subsidiary acquired or disposed of;

d. the amount of assets and liabilities other than cash and cash equivalents in the subsidiary acquired or disposed of, summarized by each major category.



The treatment prescribed is as per IAS 27 (2008) which is effective for annual periods beginning 1 July 2009. If earlier application is contemplated then please refer to paragraph 45 for transitional arrangements in the new IAS 27 to ensure compliance. IFRS 3 (2008) if applicable would also need to be adopted at the same time.

> whethercontrol retained or lost

> carryingamount is a gain or loss on this disposal.
> dischargedby means of cash and cash equivalents;
> deemedsale. The year ended of the holding company and the

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