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IAS 28Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIAS 28L4 · Expert

Loss of control with a retained associate (IFRS 10 + IAS 28 interaction): cost at fair value, equity method, partial disposal, loss of influence, associate becoming a subsidiary and proposals

6 documents14 tasks≈ 120 min
0 / 20 items completed
Standards
IAS 28 — Investments in Associates and Joint Ventures
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

Valtenis Group SA (fictitious entity) lost control of Orlane SA on 1 July 20X6 keeping 40 %, accounted for Orlane under the equity method, then sold 10 points on 1 March 20X7 and 20 points on 1 September 20X7. You prepare the accounting note on the equity method, the reclassification of other comprehensive income and the exit.

Your assignment

Deal with the interest retained after the loss of control and record its remeasurement; compute the equity method for the second half of 20X6; for the partial disposal, compute the reclassification and the gain and record the entries; assess the loss of influence, compute the gain before and after reclassification and record the entries; place the associate becoming a subsidiary, the sale of a business to the associate and the proposals; present the 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

6 documents: open each one to read it.

Document 1Memo

Group profile and case conventions

Valtenis Group SA (fictitious entity) closes its accounts on 31 December. Case conventions: amounts in EUR; fair values are those of independent valuations (case data); case convention (pedagogical assumption, not attributed to IAS 28): the gain on the 20X6 loss of control is recognised under IFRS 10 and the retained interest was first reclassified to the investment in associate caption at its consolidated carrying amount, that entry not being requested; the associate’s adjusted profit is a case datum; the profit of January and February 20X7 is ignored (the carrying amount at 1 March 20X7 is that of the 20X6 closing); no selling costs; no tax; the entries are illustrative.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Interest retained in Orlane40%
Fair value of the retained 40 % interest€640,000.00
Consolidated carrying amount of the retained interest€560,000.00
Orlane’s adjusted profit for the second half€150,000.00
Orlane’s other comprehensive income€50,000.00
Dividend received by Valtenis€40,000.00
Price received for the 10 points sold€190,000.00
Proportion of the reduction in the interest25%
Accumulated other comprehensive income€20,000.00
Price received for the 20 points sold€380,000.00
Fair value of the retained 10 % interest€190,000.00
Net share of profit and dividends for 20X7€30,000.00
Reclassification proportion on leaving the equity method100%
New credit line€500,000.00

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 sort6

  • Group profile and case conventions

  • Orlane SA: loss of control and retained interest

  • Orlane SA: second half of 20X6

  • Partial disposal of 1 March 20X7

  • Loss of influence of 1 September 20X7

  • Valtenis financing plan

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

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

      1. Task 1Analysis

        Orlane, 1 July 20X6: how is the retained 40 % interest treated after the loss of control? What is its cost and what part of the gain relates to remeasurement?

        Calculator

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

        Part 1 · Calculation

        Orlane, 1 July 20X6: how is the retained 40 % interest treated after the loss of control? What is its cost and what part of the gain relates to remeasurement?

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      2. Task 2Journal entries

        Record the retained interest brought to fair value as the cost of the associate.

        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

      3. Task 3Analysis

        Orlane, second half of 20X6: compute the share of profit and of other comprehensive income and the closing carrying amount.

        Calculator

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

        Part 1 · Calculation

        Orlane, second half of 20X6: compute the share of profit and of other comprehensive income and the closing carrying amount.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Carrying amount at 31 December 20X6 (640,000 + 60,000 + 20,000 − 40,000)

      4. Task 4Calculation

        Partial disposal of 1 March 20X7: compute the other comprehensive income to reclassify to profit or loss.

        Calculator

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

        Part 1 · Calculation

        Partial disposal of 1 March 20X7: compute the other comprehensive income to reclassify to profit or loss.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Analysis

        Partial disposal: does significant influence remain? Compute the carrying amount disposed of and the gain on disposal.

        Calculator

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

        Part 1 · Calculation

        Partial disposal: does significant influence remain? Compute the carrying amount disposed of and the gain on disposal.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Gain on disposal before reclassification (190,000 − 170,000)

      6. Task 6Journal entries

        Record the partial disposal (cash, investment disposed of, gain on disposal).

        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

        TotalsDebit0Credit0

      7. Task 7Journal entries

        Record the proportionate reclassification of 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

      8. Task 8Professional judgement

        1 September 20X7: does Valtenis lose significant influence? Determine the carrying amount at that date and the remaining other comprehensive income.

        Calculator

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

        Part 1 · Calculation

        1 September 20X7: does Valtenis lose significant influence? Determine the carrying amount at that date and the remaining other comprehensive income.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Remaining other comprehensive income reclassified (20,000 − 5,000)

      9. Task 9Calculation

        Loss of influence: compute the gain before and after reclassification of other comprehensive income.

        Calculator

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

        Part 1 · Calculation

        Loss of influence: compute the gain before and after reclassification of other comprehensive income.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Total gain on loss of influence (30,000 + 15,000)

      10. Task 10Journal entries

        Record the derecognition of the investment and the retained 10 % 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

        TotalsDebit0Credit0

      11. Task 11Journal entries

        Record the reclassification of the remaining 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

      12. Task 12Analysis

        What would happen if the associate became a subsidiary, if the transaction was the sale of a business to the associate, and what are the 2024 and 2026 proposals worth?

      13. Task 13Effects on the financial statements

        What is the cumulative effect of the five entries on the 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

      14. Task 14Conclusion

        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 / 20).

      Document this file

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

      Normative references

      • IAS 28 §22