Changes in interests without loss of control

Learning objectives

• Distinguish the acquisition of shares that gives control (investing) from the purchase of additional interests without a change in control (financing).L3, L4

Normative references

• IAS 7 §42ACash flows arising from changes in ownership interests in a subsidiary that do not result in a loss of control are classified as financing activities, unless the subsidiary is held by an investment entity and is required to be measured at fair value through profit or loss.
• IAS 7 §42BSuch changes (for example the subsequent purchase or sale by a parent of a subsidiary's equity instruments without loss of control) are accounted for as equity transactions (IFRS 10), except for a subsidiary held by an investment entity and measured at fair value through profit or loss: their cash flows are classified in the same way as other transactions with owners described in para. 17, i.e. as financing.

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

8 questions

• A parent's payment to acquire additional interests in a subsidiary it already controls is a financing cash flow.L3
• A partial sale of shares in a subsidiary without loss of control is accounted for as an equity transaction, and the cash flow is classified like other transactions with owners.L4
• Saldane holds 70% of a subsidiary and buys a further 20% from the minority shareholders for 3 million. How should the payment be classified?L3
• In which case is a change in ownership interest without loss of control not classified as financing?L4
• The Cordane group, which already controlled its 60% subsidiary, presents as investing the purchase of a further 25% for 2.2 million. What is the error?L3
• Rosvane sells 15% of its 80%-owned subsidiary (keeping control) for 1.5 million and presents the receipt, net of the subsidiary’s cash, as investing. What is the error?L4
• The Talbane group held 40% of Morquine (an associate) and buys a further 30% for 4 million, which gives it control (case data). How should the payment be classified?L3
• Isquine buys 10% of a 75%-owned subsidiary, paying 1 million in cash and 0.5 million in one year (case data). Which presentation should be used for the year?L4