Losses, impairment and discontinuing the equity method: cap on losses, long-term interests, test of the net investment, loss of influence, partial disposal and associate becoming a subsidiary: Rimel — losses and long-term loan

Context

Halvern Group SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. The preparer draws up the year’s associates file, submitted to a reviewer: significant influence in Corsel and Dunmar, the equity method for Pelvane, Quorin and Sovrel (including the 40 % interest retained after a loss of control), Vorlan’s eliminations, Rimel’s losses, the impairment of Tarvik and the loss of influence in Orvel. Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.

Assignment

Rimel losses, impairment of Tarvik and loss of influence in Orvel

Purpose of the workpaper

List the share of losses, the carrying amount of the investment and the long-term interests that form part of the net investment, cap the losses recognised and track the unrecognised losses; test the net investment as a single asset when there is objective evidence; deal with the partial disposal (proportionate reclassification of other comprehensive income) and the loss of influence. Values in use, fair values and consideration are case data; the 2024 and 2026 proposals are not applied.

Questions of the file covered by this workpaper

• Rimel: are the long-term interests part of the net investment? Compute Halvern’s interest used to cap the losses.
• Rimel: compute the share of losses to recognise.
• Rimel: compute the unrecognised losses.
• Rimel: in which order are the losses charged to the components of the interest, and must Halvern recognise a liability for the unrecognised losses?
• Tarvik: determine the recoverable amount of the net investment.
• Tarvik: compute the impairment loss on the net investment.
• Orvel: does Halvern lose significant influence? Determine the other comprehensive income to reclassify.
• Orvel: compute the gain on loss of influence before and after reclassification.
• Rimel: record the loss charged to the investment.
• Rimel: record the loss charged to the long-term interests.
• Tarvik: record the impairment loss.
• Orvel: record the derecognition of the investment and the retained 10 % interest at fair value.
• Orvel: record the reclassification of other comprehensive income.

• MemoGroup profile and file conventionsOpen
• ContractCorsel SA and Dunmar SA: voting rights and indicatorsOpen
• ExtractPelvane SA and Quorin SA: acquisitions and profitsOpen
• ContractSovrel SA: interest retained after the loss of controlOpen
• ContractVorlan SA: upstream, downstream and contribution transactionsOpen
• ExtractRimel SA and Tarvik SA: losses and impairmentOpen
• ContractOrvel SA: disposal and loss of influenceOpen
• MemoGroup training budgetOpen
• MemoValuer’s note: useful life of Pelvane’s equipmentOpen