Loss of significant influence

Learning objectives

• Explain the discontinuation of the equity method at the date significant influence is lost and the fair value of the retained interest.L3, L4
• Calculate the gain or loss on the loss of significant influence (proceeds, fair value of the retained interest, carrying amount, other comprehensive income).L4

Normative references

• IAS 28 §22The entity discontinues the use of the equity method from the date when its investment ceases to be an associate or a joint venture: (a) if it becomes a subsidiary, the entity applies IFRS 3 and IFRS 10; (b) if the retained interest is a financial asset, the entity measures it at fair value, which is its fair value on initial recognition under IFRS 9, and recognises in profit or loss the difference between the fair value of the retained interest plus the proceeds from disposing of a part interest and the carrying amount of the investment at the date the equity method was discontinued; (c) amounts previously recognised in other comprehensive income in relation to that investment are accounted for as if the investee had directly disposed of the related assets or liabilities (reclassification to profit or loss where applicable, para. 23).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

4 questions

• Alba SA sells part of its interest in Brise SA and thereby loses significant influence; the retained interest is a financial asset. Alba receives consideration of {consideration_received}. The fair value of the retained interest is {retained_interest_fair_value}, the amount of other comprehensive income to reclassify to profit or loss is {oci_reclassified} (gain), and the carrying amount of the investment at the date of loss of influence is {investment_carrying_amount} (case data). Calculate the gain recognised in profit or loss.L4
• Alba SA sells part of its interest in Brise SA, which makes it lose significant influence. It receives {consideration_received} in cash; the retained interest is a financial asset with a fair value of {retained_interest_fair_value}, and the carrying amount of the investment is {investment_carrying_amount} (case data). Case convention: no amount of other comprehensive income is to be reclassified. Record the entry for the loss of significant influence.L4
• Alba SA sells part of its interest in Brise SA, an associate. Case convention: the analysis of the facts concludes that Alba loses significant influence at the date of the sale, and the retained interest is a financial asset. What treatment does Alba apply from that date?L3
• When the investee becomes a subsidiary of the investor, the investor continues to apply the equity method to its interest.L4