Disposal Group

The draft Income Statements for the year ended 31 December 20X9 are as follows:

Holding Disposal
$ $
Revenue 553,000 450,000
Operating costs (450,000) (400,000)

Operating profits 103,000 50,000

Dividend receivables 8,000 -

Profit before tax 111,000 50,000

Tax (40,000) (14,000)
Profit after tax 71,000 36,000
Retained earnings b/f 100,000 80,000
Dividend paid 25,000 10,000

Additional information:
The draft group accounts of the Holding Group do not include the results of Disposal Ltd.

On 1 January 20X5 Holding Plc acquired 70% of the shares of Disposal Ltd for $100,000 when the
Disposal Ltd's net assets were $120,000. Disposal Ltd has share capital of $50,000.

Disposal paid its 20X9 dividend in cash on 31March 20X9.

No good will has been impaired.

The Holding Group values the non controlling interest using the proportion of net assets method.

A - Full Disposal:
Prepare the cosolidated income statement for the year ended 31 December 20X9 for the Holding G
holding in Disposal Ltd on 1 July 20X9 for $200,000. This disposal is not yet recognised in any w
Group's income statement.
Compute the group retained earnings at 31 December 20X9.Ignore tax on disposal.

B- Disposal where control is not lost: (Subsidiary remains subsidiary)

Prepare the cosolidated income statement for the year ended 31 December 20X9 for the Holding Grou
Plc sold 15% of its holding in Disposal Ltd on 1 July 20X9 for $50,000. This disposal is not yet
Holding plc group's income statement. Prior to the disposal the FV of the NCI was $30,000/- . After
is $60,000/-.
C- Disposal where Significant Control is left: (Subsidiary Becomes Associate)

Prepare the cosolidated income statement for the year ended 31 December 20X9 for the Holding Grou
Plc sold half of its holding in Disposal Ltd on 1 July 20X9 for $200,000. This disposal is not yet
Holding plc group's income statement. The residual holding of 35% has a fair value of $20,000 and
with significant influence.

D- Disposal where Trade investment is left (No control No Significant Influence - Trade Investment Retained)

Prepare the cosolidated income statement for the year ended 31 December 20X9 for the Holding Grou
Plc sold 60% of its holding in Disposal Ltd on 1 July 20X9 for $200,000. This disposal is not yet
Holding plc group's income statement. The residual holding of 10% has a fair value of $20,000 and
with no significant influence or control. Holding company account for it as trade investment.
lts of Disposal Ltd.

osal Ltd for $100,000 when the fair value of

of $50,000.

rtion of net assets method.

ember 20X9 for the Holding Group sold its

s not yet recognised in any way in Holding

on disposal.

ber 20X9 for the Holding Group on the basis that Holding
0,000. This disposal is not yet recognised in any way in
the NCI was $30,000/- . After the disposal the FV of NCI
 ber 20X9 for the Holding Group on the basis that Holding
0,000. This disposal is not yet recognised in any way in
has a fair value of $20,000 and leaves the Holding group

e Investment Retained)

ber 20X9 for the Holding Group on the basis that Holding
0,000. This disposal is not yet recognised in any way in
has a fair value of $20,000 and leaves the Holding group
it as trade investment.
A (i) Consolidated Income Statement - Full Disposal
Holding Group Disposal Ltd
$
Revenue 553,000 (6/12x 450000)
Operating costs 450,000 (6/12x 400000)

Operating profits
Dividend receivables 8000 less inter co (70% x 10,000)
Profit on disposal (W-4)
Profit before tax
Tax 40,000 (6/12x14,000)
Profit after tax

Attributable to:
Equity holders of Holding plc
NCI (30%x36,000x6/12)

A (ii) Group retained earnings at 31December 20X9 - Part disposal

$
Holding
Group % of Disposal's post acquisition R.E b/f
(70% x (130,000 - 120,000) ( per Q)

Consolidated Group Profit for the Year

Less dividend paid
Group Retained Earnings
Group
$
778,000
(650,000)

128,000
1,000
87,400
216,400
(47,000)
169,400

164,000
5,400
169,400

100,000
7,000

107,000
164,000
(25,000)
246,000
B (i) Consolidated Income Statement - Subsidiary Still Subsidiary

Holding Group Disposal Ltd

$ $
Revenue 553,000 450,000
Operating costs 450,000 400,000
Operating profits
Dividend receivables 8000 less inter co (70% x 10,000)
Profit before tax
Tax 40,000 14,000
Profit after tax

Attributable to:
Equity holders of Holding plc (Bal)
NCI (45%x36,000)

No gain or loss will be calculated rather the following treatment will be taken:

The difference in the proceeds and change in the Fair value of non-controlling interest
shareholders equity.

Proceeds 50,000
NCI FV change (60,000-30,000) 30,000
20,000
The Double entry would be as follows:

Dr Cash / Bank 50,000

Cr NCI
Cr Share holders Equity

Note:- Also see Grange Question in P2 ACCA December 2009

B (ii) Group retained earnings at 31December 20X9 - Part disposal

Holding
Group % of Disposal's post acquisition R.E b/f
(70% x (130,000 - 120,000) ( per Q)

Consolidated Group Profit for the Year

Less dividend paid
Group Retained Earnings
 Group
$
1,003,000
(850,000)
153,000
1,000
154,000
(54,000)
100,000

83,800
16,200
100,000

ment will be taken:

ue of non-controlling interest will be charges to

30,000
20,000

$
100,000
7,000

107,000
83,800
(25,000)
165,800
 C (i) Cosolidated Income Statement - Subsidiary Becomes Associates
Holding Group Disposal Ltd

Revenue 553,000 (6/12x 450000)

Operating costs 450,000 (6/12x 400000)

Operating profits
Dividend receivables 8000 less inter co (70% x 10,000)
Income from Associate (35% x 36,000 x 6/12)
Profit on disposal ( W-5)
Profit before tax
Tax 40,000 (6/12x14,000)
Profit after tax

Attributalbe to :
Equity holders of Holding plc
NCI (30%x36,000x6/12)
Group Income

C (ii) Group retained earnings at 31December 20X9 - Part disposal

$
Holding
Group % of Disposal's post acquisition R.E b/f
(70% x (130,000 - 120,000) ( per Q)

Consolidated Group Profit for the Year

Less dividend paid
Group Retained Earnings
 Group
$
778,000
(650,000)

128,000
1,000
6,300
287,400
422,700
(47,000)
375,700

370,300
5,400
375,700

100,000
7,000

107,000
370,300
(25,000)
452,300
 D (i) Cosolidated Income Statement - Disposal with Trade Investment Retained

Holding Group Disposal Ltd

$ $
Revenue 553,000 (6/12x 450000)
Operating costs 450,000 (6/12x 400000)

Operating profits
Dividend receivables 8000 less inter co (70% x 10,000)
Profit on disposal ( W 6)
Profit before tax
Tax 40,000 (6/12x14,000)
Profit after tax

Attributalbe to :
Equity holders of Holding plc
NCI (30%x36,000x6/12)
Group Income

D (ii) Group retained earnings at 31December 20X9 - Part disposal

$
Holding
Group % of Disposal's post acquisition R.E b/f
(70% x (130,000 - 120,000) ( per Q)

Consolidated Group Profit for the Year

Less dividend paid
Group Retained Earnings
 Group
$
778,000
(650,000)

128,000
1,000
107,400
236,400
(47,000)
189,400

184,000
5,400
189,400

100,000
7,000

107,000
184,000
(25,000)
266,000
Workings
W-1
Disposal Ltd Net Assets
Net assets table at Disposal
$
Share capital 50,000
Retained earnings b/f 80,000
(6/12 x 36,000) 18,000
Less dividend (10,000)
138,000
W-2
Good will
Cost 100,000
For 120,000 x 70% 84,000
Good will 16,000

W-3
Intera Co Dividend $
Dividend Paid by Disposal = 10,000
Group dividend 70% = 7,000
Total dividend receivable = 8,000
Dividend out the group = 1,000

W-4
Profit on Disposal (Full Disposal)
Proceeds 200,000
Net assets recorded prior to disposal
Net assets 138,000
Good will 16,000
NCI (30% x 138,000) (41,400)
(112,600)
Profit 87,400

Alternate Working
Net Asset 138,000 Cash
Goodwill (W 2) 16,000 NCI
I/S (Bal) 87,400
FV C/d
241,400

W-5
Profit on Disposal (Subsidiary Becomes Associate )
Proceeds 200,000
FV of retained interest (assumed) 200,000
400,000
Net assets recorded prior
to disposal
Net assets 138,000
Good will 16,000
NCI (41,400)
(112,600)
287,400
Alternate Working
Net Asset 138,000 Cash
Goodwill (W 2) 16,000 NCI
I/S (Bal) 287,400
FV C/d
441,400

W-6
Profit on Disposal (Trade Investment Left )
Proceeds 200,000
FV of retained interest (assumed) 20,000
220,000
Net assets recorded prior
to disposal
Net assets 138,000
Good will 16,000
NCI (41,400)
(112,600)
107,400
Alternate Working
Net Asset 138,000 Cash
Goodwill (W 2) 16,000 NCI
I/S (Bal) 107,400
FV C/d
261,400
Net Assets b/f

$
50,000
80,000

130,000

(8,000 - 7,000)

200,000
41,400

-
241,400
200,000
41,400

200,000
441,400

200,000
41,400

20,000
261,400