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Practical caseIFRS 10L4 · Expert

Loss of control with a retained associate (IFRS 10 + IAS 28 interaction): derecognition, fair value of the retained interest, gain, reclassification of other comprehensive income, multiple arrangements and the 2014 amendments

4 documents16 tasks≈ 120 min
0 / 19 items completed
Standards
IFRS 10 — Consolidated Financial Statements
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

Haltrey Group SA (fictitious entity) lost control of two entities in 20X6: Sorvane Industrie SA, sold under two linked contracts with a retained 30 % interest that became an associate, and Fonds Cyrene, managed by its subsidiary, whose control is reassessed after the sale of 88 % of the units. You prepare the accounting file for these two losses of control.

Your assignment

For Sorvane, assess the multiple arrangements, compute the net assets derecognised, the gain, the part relating to the retained interest and the reclassification of other comprehensive income, then deal with the retained interest; for Fonds Cyrene, reassess principal or agent, compute the loss and deal with the retained interest; explain the effect of an associate buyer and the silences of the standard; record the three entries, present their cumulative effect and conclude. One document is not useful.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Autonomous professional situation

As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.

  • Organise the work
  • Document each point
  • Argue the conclusion

Documents

File documents

4 documents: open each one to read it.

Document 1Memo

Group profile and case conventions

Haltrey Group SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. Case conventions: amounts in EUR; fair values are those of independent valuations (case data); case convention (pedagogical assumption, not attributed to IFRS 10): Sorvane’s non-controlling interests are measured at their share of identifiable net assets, with no goodwill; Sorvane’s goodwill belongs to the owners of the parent; no selling costs; no tax; early application of the 2014 amendments is not elected; the entries are illustrative.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Consideration received for the 50 points sold€1,500,000.00
Fair value of the retained 30 % interest€900,000.00
Sorvane’s assets excluding goodwill€3,800,000.00
Sorvane’s goodwill€400,000.00
Sorvane’s liabilities€1,700,000.00
Sorvane’s non-controlling interests€420,000.00
Accumulated translation difference (reclassifiable)€150,000.00
Accumulated revaluation reserve (not reclassifiable)€60,000.00
Interest retained in Sorvane30%
Interest held before the sale80%
Consideration received for the units sold€4,356,000.00
Fair value of the retained 12 % interest€600,000.00
Assets of the fund€5,200,000.00
Liabilities of the fund€200,000.00
Units sold88%
Units acquired by Caisse Norde55%
Management performance bonus€70,000.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort4

  • Group profile and case conventions

  • Sorvane Industrie SA: sale under two linked contracts

  • Fonds Cyrene: sale of units and reassessment of control

  • Management performance bonus

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

      Organise your work freely: deal with each point, then argue your conclusion.

      1. Task 1Professional judgement

        Sorvane: do the two sale contracts form a single transaction? On which date is control lost?

      2. Task 2Calculation

        Sorvane: compute the carrying amount of the net assets derecognised (goodwill included).

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Sorvane: compute the carrying amount of the net assets derecognised (goodwill included).

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      3. Task 3Calculation

        Sorvane: compute the gain on loss of control before reclassification of other comprehensive income.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Sorvane: compute the gain on loss of control before reclassification of other comprehensive income.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Analysis

        Sorvane: identify the part of the gain relating to the remeasurement of the retained interest to fair value.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Sorvane: identify the part of the gain relating to the remeasurement of the retained interest to fair value.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Calculation

        Sorvane: compute the amount of other comprehensive income reclassified to profit or loss and state what happens to the non-reclassifiable reserve.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Sorvane: compute the amount of other comprehensive income reclassified to profit or loss and state what happens to the non-reclassifiable reserve.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Non-reclassifiable reserve transferred within equity, with no effect on profit or loss

      6. Task 6Analysis

        Sorvane: how is the retained 30 % interest treated after the loss of control? Which value serves as the cost for the equity method?

      7. Task 7Professional judgement

        Fonds Cyrene: after the sale and the arrival of Caisse Norde, is Haltrey Gestion still a principal? What is the effect on control and on which date?

      8. Task 8Calculation

        Fonds Cyrene: compute the carrying amount of the net assets derecognised.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Fonds Cyrene: compute the carrying amount of the net assets derecognised.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      9. Task 9Calculation

        Fonds Cyrene: compute the gain or loss on the loss of control.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Fonds Cyrene: compute the gain or loss on the loss of control.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      10. Task 10Analysis

        Fonds Cyrene: how is the retained 12 % interest treated? Which value to give it and under which standard afterwards?

      11. Task 11Analysis

        What would change if the buyer were an associate, and what does the standard say on splitting goodwill and accumulated other comprehensive income in a change without loss of control?

      12. Task 12Journal entries

        Record the derecognition of Sorvane with a gain and the retained interest at fair value.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        4. Line 4

        5. Line 5

        6. Line 6

        7. Line 7

        TotalsDebit0Credit0

      13. Task 13Journal entries

        Record the reclassification to profit or loss of Sorvane’s other comprehensive income.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      14. Task 14Journal entries

        Record the derecognition of Fonds Cyrene with a loss and the retained interest at fair value.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        4. Line 4

        5. Line 5

        TotalsDebit0Credit0

      15. Task 15Effects on the financial statements

        What is the cumulative effect of the three entries on the consolidated financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €
        4. €

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      16. Task 16Conclusion

        Write the conclusion.

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 19).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IFRS 10 §25
      • IFRS 10 §B98
      • IFRS 10 §B96