Acquiring or disposing of a subsidiary

Learning objectives

• Calculate the cash flow arising from the acquisition or disposal of a subsidiary, net of cash acquired or disposed of.L3, L4
• Prepare the disclosures about obtaining and losing control (consideration, portion paid in cash, cash and other assets and liabilities concerned).L3, L4

Normative references

• IAS 7 §39The aggregate cash flows arising from obtaining or losing control of subsidiaries or other businesses are presented separately and classified as investing activities.
• IAS 7 §40An entity discloses, in aggregate, in respect of both obtaining and losing control during the period: the total consideration paid or received; the portion of the consideration consisting of cash and cash equivalents; the amount of cash and cash equivalents in the subsidiaries or other businesses concerned; the amount of the assets and liabilities other than cash in those subsidiaries or businesses, summarised by each major category.
• IAS 7 §40AAn investment entity (as defined in IFRS 10) need not apply paras. 40(c) and 40(d) to an investment in a subsidiary that is required to be measured at fair value through profit or loss.
• IAS 7 §41Presenting separately, as single line items, the cash flow effects of obtaining and losing control, together with the separate disclosure of the amounts of assets and liabilities acquired or disposed of, helps to distinguish those cash flows from the other operating, investing and financing cash flows; the cash flow effects of losing control are not deducted from those of obtaining control.
• IAS 7 §42The aggregate amount of the cash paid or received as consideration for obtaining or losing control is reported in the statement of cash flows net of cash and cash equivalents acquired or disposed of as part of such transactions.

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

15 questions

• How is the total cash effect of gaining or losing control of a subsidiary presented?L3
• What amount is presented in the statement for the acquisition of a subsidiary paid in cash?L3
• An investment entity that must measure a subsidiary at fair value through profit or loss loses control of it. Which exemption may it apply?L4
• For obtaining control during the period, which information does the entity disclose in aggregate?L3
• The Rosdine group acquired one subsidiary (net outflow of 3 million) and sold another (net inflow of 1.8 million). Which of these presentations comply?L4
• The Lirmont group acquires 100% of Taldine for consideration of {total_consideration}, of which {shares_issued} in new Lirmont shares and the balance in cash. Taldine holds {cash_acquired} of cash. Compute the net investing outflow.L3
• To gain control of Orvaldis, the Peltmont group pays {cash_paid} in cash and hands over {shares_issued} of its own shares. At the acquisition date Orvaldis has {cash_acquired} in its bank accounts. What net amount appears in investing cash flows?L3
• The Ardmont group sells its subsidiary Dorrane for {sale_price}, of which {deferred_consideration} is payable in 18 months; Dorrane held {cash_disposed} of cash at the disposal date (case data). Compute the net investing inflow for the period.L4
• Gelmont's consolidated trade receivables move from {opening_receivables} to {closing_receivables}. A subsidiary acquired during the year brought {acquired_receivables} of receivables at the date control was obtained. Compute the change in receivables to use in operating cash flow (negative if it reduces the flow).L4
• Belvane presents an outflow of 5 million for the acquisition of a subsidiary paid in cash, although the subsidiary held 900,000 of cash. What is the error?L3
• In its indirect reconciliation, Falquine uses the gross change in its consolidated inventories, without removing the 600,000 of inventories brought by a subsidiary acquired. What is the error?L4
• Halvelle gains control of Sorbane for 3 million paid in cash; Sorbane holds 250,000 of cash, 1.4 million of inventories and receivables and 600,000 of liabilities. Which presentation is complete?L3
• Lirvane acquires a subsidiary whose cash (1.2 million) exceeds the cash price paid (0.9 million): the subsidiary was very liquid (case data). How should the transaction be presented?L4
• The Fenmont group acquired the subsidiary Arbane (price 7 million, of which 2 in shares; cash acquired 0.8 million) and sold the subsidiary Quelmira (price 4 million received; cash disposed of 0.5 million). Write the memo on presenting these transactions in the consolidated statement and in the notes.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