BKAF3073 Chapter 3

CHANGES IN
OWNERSHIP INTEREST
Learning Objectives:
At the end of this chapter, students will be able
to:
Explain acquisition of subsidiary during the
accounting period.
Explain business combination achieved in
stages (piecemeal acquisition)
To account acquisiton of additional share
To account on disposal of a subsidiary and
disposal of shares in subsidiary.
To prepare the consolidated financial
statements.
Acquisition During
an Accounting Period
the accounts of subsidiary/ies will be
consolidated for the whole accounting period.
pre acquisition reserve needs to be
differentiated from post acquisition reserve
2 approaches to consolidate:
On pra-rata basis (part of the year)
In full (whole-year)
Example 2.14 (TLT:pg. 97) pra-rata basis
Piecemeal Acquisitions
Parent acquire its shareholding in a subsidiary in
stages
2 situations:
1. Step-Acquisition
Business combination achieved in stages
(successive purchase of shares in an investee
that eventually result in control)
2. Successive purchases of shares in an existing
subsidiary
Step-Acquisitions
Business combination achieved in stages (MFRS3: para 42)

the need to consolidate the subsidiary only from the date in
which control is achieved
The effective date of control is at the time when the interest
of parent in subsidiary is more than 50%.
The different between the fair value of the previously held
interest and its carrying amount is recognised in SCI.
Goodwill is calculated only once, i.e. on the date of control.
the acquirer shall remeasure its previously held equity
interest in the acquiree at its acquisition-date fair value
recognise the resulting gain or loss, if any, in profit or loss.
Step-Acquisitions
If the acquirer recognised changes in the value of its
equity interest in the acquiree in other comprehensive
income (for example, because the investment was
classified as available for sale(AFS)) in prior reporting
periods,
the amount that was recognised in other

comprehensive income shall be recognised on the
same basis as would be required if the acquirer
had disposed directly of the previously held equity
interest.
Investment in associate vs investment in AFS .
Illustration 3.1
AB Bhd acquired XY Bhd through stages acquisition as
below:
Date of
Number Interest Accumulated Retained
Cost of
Acquisition of shares acquired
interest
profits investment
acquired
acquired
1 Jan 2009
15,000
15%
15%
60,000
40,000
1 June 2010
75,000
45%
60%
130,000
135,000
On 1 June 2010, the previously held 15% interest and the

remaining 40% non-controlling interest were measured at
fair value of RM45,000 and RM120,000 respectively.
Illustration 3.1
The balance sheets for the two companies as at 30 June 2010 were
as follows:
AB Bhd
XY Bhd
Share Capital of RM1.00
300
150
Retained profits
180
140
480
290
Investment in XY Bhd
175
Sundry net assets
305
290
480
290
Illustration 3.1
Required:
1. Calculate the gain or loss that should be
recognised in the SCI.
2. Calculate the goodwill on consolidation
3. Prepare the consolidation journals for the year
ended 30 June 2010 if AB Bhd chooses to use
fair value to measure the non-controlling
interest.
Solution:
(a)
Fair value of previously held interest 45,000
(-) Carrying amount
40,000
Gain on disposal of 15% interest
5,000
Solution:
(b)
NCI @
NIA
RM
NCI @ FV
Cost of investment (45%)
135,000
135,000
NCI (40%)
112,000
120,000
45,000
45,000
292,000
300,000
280,000
280,000
12,000
20,000
FV of previously held interest (15%)

NIA (150 +130)
Goodwill on consolidation
RM
Solution (cont):
c) Consolidation journal entries:
DR Investment in XY Bhd
5
CRGain on reacquisition
5
(To record the gain on previously held interest)
DR Share Capital
90
DR Retained profits b/f
78
DR Goodwill on consolidation
12
CRInvestment in XY Bhd
180
(To eliminate cost of investment in XY Bhd)
Solution (cont):
c) Consolidation journal entries (cont):
DR
DR
DR
Share Capital (40% x 150)

60
Retained profits (40% x 130)
52
8
Cr. Non-controlling Interest
120
(To record non-controlling interest in SFP)
Dr. NCI (SCI) (10 x 40%)
Cr. NCI (SFP)
4
4
Step-Acquisitions (cont)
Reclassification of components of Other Comprehensive Income
the amount that was recognised in other comprehensive income shall be
recognised on the same basis as would be required if the acquirer had
disposed directly of the previously held equity interest.
Only exchange translation reserve shall be recycled as reclassification
adjustments to profit or loss
Equity investment as Available-for-sale (AFS) : any change in fair value
had previously been recognised in other comprehensive income &
retained in fair value reserve, that AFS investment shall be remeasured
to fair value at the acquisition date. Any change in fair value plus the
gain/loss previously recognised shall be included in the calculation of the
gain/loss on remeasurement.
For revaluation reserve of PPE direct transfer to retained profits within the
statement of changes in equity.
Revaluation of financial asset (MFRS 9) retained in fair value reserve -
direct transfer to retained profits within the statement of changes in equity.
Illustration 3.2
As at the end of the prior financial year ended 31 December 2008,
Seroja Bhd has the following non-controlling equity investments and the
related carrying amount:
interest
Cost
(RM)
Profit share/
value
change (RM)
Revaluation
reserve
(RM)
Carrying
amount (RM)
Hijau Bhd
30%
50
40
20
110
Merah
Bhd
15%
20
35
55
On 1 January 2009, Seroja Bhd increases its stakes in the two

companies as follows:
Increase in state
Cash paid (RM)
Hijau Bhd
45%
225
Merah Bhd
40%
160
Seroja Bhd assumes control of the two companies on 1 January 2009.
Illustration 3.2
Based on the market approach, the consultant provides the
fair values of the two companies as follows:
Net assets
NCI
Hijau Bhd
RM360
RM125
Merah Bhd
RM250
RM180
Required: Compute
a) the goodwill on consolidation
b) the gain or loss on remeasurement at acquisition date
Solution 3.2:
a) Fair value:
Hijau Bhd
Merah Bhd
FV of companies as whole
(based on FV of NCI)
125 / 25%
= 500
180 / 45%
= 400
FV of previously held equity interest:
30% x 500
= 150
15% x 400
= 60
Goodwill on consolidation:
Hijau Bhd
Merah Bhd
FV of consideration cash
225
160
FV of NCI
125
180
FV of previously held equity

interest
150
60
500
400
FV of net assets
360
250
140
150
Solution 3.2 (cont):

b) Gain or loss on remeasurement:
Hijau Bhd
Merah Bhd
Equity interest
30%
15%
FV of previously held equity

interest
150
60
(-) Carrying amount immediately

before acquisition date
(110)
(55)
(+) FV reserved recycled
35
Gain on remeasurement
Journal entries: Hijau Bhd
Dr. Investment in Hijau 150
Cr. Carrying amount of investment
40
Dr. Revaluation reserved 20
Cr. Retained profit 20
40
110
40
Solution 3.2 (cont):

b)
Journal entries: Merah Bhd
Dr. Investment in Merah
60
Other comprehensive income
35
Cr. Carrying amount of investment
Other illustration : Example 3.13 (pg 146)
55
40
Successive purchases of shares

(SPOS) in an existing
increase parent interst and decreased the noncontrolling interest.
No gain or loss is recognised.
Changes in a parents ownership interest in a
subsidiary that do not result in a loss of control are
accounted for as equity transactions. (MFRS127,
para 30)
Goodwill no consequential adjustment to carrying
amount
Illustration 3.3
AB Bhd acquired a 70% interest in XY Bhd in 1 January 2008 for a
cash consideration of RM21,000,000. The net assets of XY Bhd at
that date were represented by share capital of RM10,000,000
(10,000,000 units ordinary shares) and retained profits of
RM10,000,000. The fair value of the remaining 30% noncontrolling interest was amounted to RM9,000,000. On 1 January
2010, AB Bhd purchased another 10% interest in XY Bhd from
other shareholders of XY Bhd.
The cost of investment for the acquisitions was as follows:
RM
7,000,000 shares in XY Bhd 21,000,000
1,000,000 shares in XY Bhd
7,000,000
The financial statements of the two companies for the year ended
31 December 2010 were as follows:
Illustration 3.3
Statement of Comprehensive Income for the year ended 31
December 2010
AB Bhd XY Bhd
RM000 RM000
Profit before taxation
8,000
6,000
(2,400)
(1,800)
Profit for the period
5,600
4,200
Retained profits brought forward
25,200
31,000
30,800
35,200
Taxation
Illustration 3.3
Statement of Financial Position as at 31 December 2010
AB Bhd
XY Bhd
RM000 RM000
Share Capital of RM1.00
40,000
10,000
Retained profits
30,800
35,200
70,800
45,200
28,000
Sundry net assets
42,800
45,200
70,800
45,200
Illustration 3.3
Required:
1. Calculate the goodwill on consolidation
2. Prepare the consolidation journals for the year ended
31 December 2010
Solution:
(a)

1/1/2008
NCI
FV NIA (10 + 10)

NCI @ NIA
NCI @ FV
RM000
RM000
21,000
21,000
6,000
9,000
27,000
30,000
20,000
20,000
7,000
10,000
Solution:
(a)
1/1/2010:
Carrying amount of NCI
NCI @ NIA
NCI @ FV
RM000
RM000
12,300
15,300
Transfer to parent (10/30)
4,100
5,100
20% interest carried forward
8,200
10,200
Cost of investment
7,000
7,000
Change to NCI
4,100
5,100
Negative movement in equity
2,900
1,900
Post-acquisition RE (1/1/2010) = 31,000 10,000 = 21,000

NCI % on post-acq RE = 30% x 21,000 = 6,300
Solution:
(b) Consolidation journal entries 31/12/2010
DR.
Share capital
7,000
DR. Retained profits b/f
7,000
DR. Goodwill on consol.
7,000
CR.
21,000
DR. NCI (SCI) (20% x 4,200) 840
CR.
NCI (SFP)
840
(To record non-controlling interest in current year profit )
Solution:
(b) NCI @ FV
DR.
Share capital
3,000
DR.
Retained profits
9,300
DR. Goodwill on consol.
3,000
CR. NCI (SFP)
15,300
(To record minority interest in balance sheets)
DR.
DR.
Retained profits (b/f)

1,900
NCI (SFP)
5,100
CR. Investment in XY Bhd 7,000
(To record negative movement in parent equity)
Other illustration: Example 3.15 (pg 156)
Solution:
(b) NCI @ FVNIA
DR.
Share capital
3,000
DR.
Retained profits
9,300
(30% x 31,000)
CR. NCI (SFP)
12,300
(To record minority interest in balance sheets)
DR.
Retained profits (b/f)
2,900
DR.
NCI (SFP)
4,100
CR. Investment in XY Bhd
7,000
(To record negative movement in parent equity)
Disposal of shares in subsidiary

Disposal of shares in subsidiary can be
categorized as follows:
1) Total (100%) disposal of shares
2) Partial disposal of shares
a) a subsidiary
b) an associate
c) a simple investment
Different gain/loss on disposal from

parents view and groups view

Calculation of gain or loss on disposal of shares in
subsidiary:
Companys (Parent) point of view:
Fair value of consideration received
xxx
Fair value of residual interest
xxx
Gain previously reported in
other comprehensive income
xxx
(-) Net assets and goodwill derecognised
(xx)
Gain or loss on disposal
xxx
or,
Sale proceed
xxx
(-) Carrying value of share disposed (COI)
xxx
Gain or loss on disposal
xxx

Gain or loss on disposal of shares in subsidiary:
Groups point of view- Two methods:
1. Cost Method
Gain to parent
Less: Post-acquisition reserves:
-brought forward
-current year profit after tax to date of disposal
XX
(XX)
(XX)
Add: Goodwill impaired
XX
Gain/loss on disposal (group)
XX

2. Net Assets Method
Sales proceeds
Less: Net Assets at date of disposal:
Share Capital
Pre-acquisition reserves
Post-acquisition reserves:
-brought forward
-current year profit after tax to date of
disposal
RM
XXX
(XX)
(XX)
(XX)
(XX)
(XX)
Less: Goodwill remaining

Gain/loss on disposal (group)
XX
Total disposal of shares

The equities shares in subsidiary will be nil.
Adjustment of the gain or loss on disposal needs to be
done in the current years consolidated profit and loss
account.
Consolidated SCI shall include the profit & other
comprehensive income made & retained by the subsidiary
during the period prior to disposal.
The retained profits & other reserves (gain/loss previously
recognised in other comprehensive income) brought
forward shall include the post-acquisition profits & other
post-acquisition reserves of the subsidiary that have been
recognised as at the end of the previous financial year.
Illustration 3.4
AB Bhd acquired a 100% interest in XY Bhd on 1/1/2000 for
a cash consideration of RM14,000,000. The net assets of
XY Bhd at that date were represented by share capital of
RM10,000,000 (10,000,000 units ordinary shares) and
retained profits of RM2,000,000.
On 30/6/2002, AB Bhd sold its entire shareholdings in XY
Bhd for a cash consideration of RM19,000,000.
Assume income tax rate was 30%.
The financial statements for both companies are as follows:
Illustration 3.4
SCI for the year ended 31 December 2002
AB Bhd
RM000
Turnover
XY Bhd
RM000
10,000
6,800
(12,000)
(4,000)
Gain on disposal of shares
5,000
3,000
2,800
Less: Taxation
(900)
(840)
2,100
1,960
5,900
3,640
Retained profits carried forward
8,000
5,600
Less: Expenses
Illustration 3.4
SFP as at 31 December 2002
AB Bhd
RM000
Share capital of RM1 each
XY Bhd
RM000
20,000
10,000
8,000
5,600
28,000
15,600
Fixed assets
14,000
Sundry net assets
14,000
15,600
28,000
15,600
Retained profits
Illustration 3.4
Required:
a) Calculate the gain or loss arising from the disposal of
shares in XY Bhd.
b) Record the consolidation journal entries for the year
ended 31 December 2002.
c) Prepare the consolidated financial statements (CFS) for
the year ended 31 December 2002.
Solution
(a)
Date of acquisition = 1 January 2000
Date of disposal = 30 June 2002
Date of CFS
= 31 December 2002
% Disposed of subsidiarys shares = 100%
COI disposed = 14,000,000
1 January 2000 30 June 2002 = 100% ; NCI = 0%
30 June 2002 31 December 2002 = 0%
Solution
(a)
Calculation of goodwill:
Cost of investment
Less: Net Identifiable Assets
Share Capital
Retained profits
RM000
14,000
10,000
2,000
2,000
Solution
Gain or loss on disposal of shares;

Sales proceeds
Less: Cost of investment disposed
Gain to parent
(-) Post-acquisition reserves:
- brought forward (3,640 2,000)
- current year profit after tax to date of disposal
(1,960 x 6/12)
Gain to group
RM000
19,000
14,000
5,000
(1,640)
(980)
2,380
J/e-1
J/e-2
Solution
(b) Consolidation Journal entries for the year ended 31 December 2002
(1) DR Gain on disposal of shares 1,640
CR Retained profits b/f 1,640
(To adjust disposal of shares in subsidiary for post acquisition brought
forward)
(2) DR Expenses (4,000 x 6/12) 2,000
DR Gain on disposal of shares
980
DR Taxation expenses (840 x 6/12) 420
CR Turnover (6,800x6/12) 3,400
(To consolidate the result of XY Bhd for the 6 month period and adjust
disposal of shares in subsidiary for post acquisition current year profit)
Solution
(c)
AB Bhd and Subsidiary
Consolidated SCI for the year ended 31 December 2002
Turnover
Less: Expenses
Gain on disposal of
shares
Less: Taxation
Retained profits brought
forward
Retained profits carried
forward
AB Bhd XY Bhd
DR
RM000 RM000 RM000
10,000
0
(12,000)
0
2,0002
5,000
9802
1,6401
3,000
0
(900)
0
(420) 2
2,100
0
5,900
8,000
CR
RM000
3,4002
GROUP
RM000
13,400
(14,000)
2,380
1,780
(1,320)
460
1,6401
7,540
8,000
Solution
Consolidated SFP as at 31 December 2002
AB Bhd
RM000
XY Bhd
RM000
GROUP
RM000
Share capital of RM1

each
20,000
20,000
Retained profits
8,000
28,000
0
0
8,000
28,000
Fixed assets
Sundry net assets
14,000
14,000
28,000
0
0
0
14,000
14,000
28,000
Disposal of shares with retention of

Subsidiary status
This type of disposal will decrease parents equities in
subsidiary and increase non-controlling interest.
Changes in a parents ownership interest in a subsidiary
that do not result in a loss of control are accounted for as
equity transactions. (MFRS127,para 30)
There will be no gain or loss recognised in SCI.
However, the adjustment on disposal needs to be done in
the current years consolidated SCI.
Carrying amount of NCI shall be adjusted to reflect the
change in the parents interest
Any difference between the amount by which NCI is so adjusted
and FV of consideration paid/received, if any, shall be recognised
directly to equity & attributed to owners of the parent.
Illustration 3.5
AB Bhd acquired a 80% interest in XY Bhd on 1 January
2000 for a cash consideration of RM14,000,000. The net
assets of XY Bhd at that date were represented by share
capital of RM10,000,000 (10,000,000 units ordinary shares)
and retained profits of RM2,000,000.
On 30 June 2002, AB Bhd sold 2,000,000 shares in in XY
Bhd for a cash consideration of RM8,500,000.
Illustration 3.5
SCI for the year ended 31 December 2002
AB Bhd
RM000
XY Bhd
RM000
Turnover
15,000
6,800
Less: Expenses
12,000
4,000
3,000
2,800
Gain on disposal
5,000
8,000
2,800
Less: Taxation
2,400
840
5,600
1,960
5,900
3,640
11,500
5,600
Illustration 3.5
SFP as at 31 December 2002
AB Bhd
RM000
XY Bhd
RM000
20,000
10,000
Retained profits
11,500
5,600
31,500
15,600
Investment in XY Bhd, at cost
10,500
Sundry net assets
21,000
15,600
31,500
15,600
Illustration 3.5
Required:
a) Calculate the movement in equity arising
from the disposal of shares in XY Bhd.
b) Record the consolidation journal entries
for the year ended 31 December 2002.
c) Prepare the consolidated financial
statements for the year ended 31
December 2002.
Solution
(a)
Date of CFS
= 31 December 2002
% Disposed of subsidiarys shares = 2,000,000/10,000,000
= 20%
COI disposed = (14,000,000 / 8) x 2 = 3,500,000
1 January 2000 30 June 2002 = 80% ; NCI = 20%
30/6- 31/12/2002 = 60% (Subsidiary company); NCI = 40%
Solution
1/1/2000 - Calculation of goodwill for
80% interest:
Cost of investment
Non-controlling interest
3,500
FV of the acquiree as a whole
Less: Net Identifiable Assets
RM000
14,000
17,500
12,000
5,500
Solution
30/6/2002
RM000
Fair value of consideration received
8,500
(-) Net assets:
Share capital
10,000
Pre-acquisition reserves
2,000
Post acquisition reserves (3,640 2,000) 1,640
Current year profit after tax (1,960 / 2)
980
14,620
Percentage of interest disposed
x 20%
(2,924)
(-) Goodwill (20% x 5,500)
Positive movement in parent equity
(1,100)
4,476
Solution
Or;
30/6/2002
Cost Method:
RM000
Sale proceed
8,500
(-) COI (14,000 x 2/8)
3,500
Gain to parent
(-) Post acquisition reserves
(1,640 + 980) x 20%
5,000
Positive movement in parent equity
4,476
524
Solution
(b) Consolidation Journal entries
DR
DR
DR
Share capital (80% x 10,000)

8,000
Retained profits b/f (80% x 2,000) 1,600
Goodwill on consolidation(5,500 x 80%) 4,400
CR Investment in XY Bhd
14,000
DR Share Capital (20% x 10,000)
2,000
DR Retained profits b/f (20% x 3,640)
728
DR Goodwill on consolidation (5,500 x 20%)
1,100
CR Non-controlling interest (SFP)
3,828
(To record non-controlling interest in SFP)
Solution
DR NCI (SCI)
CR NCI (SFP)
588
588
(To credit non-controlling interest of current years profit)

[(1,960x20% x 6/12)+(1,960x40% x 6/12)]
Dr. Gain on disposal
Investment in XY
Cr. NCI (SFP)
5,000
3,500
8,500
(To reverse gain on disposal in parents a/c and to record NCI)

Dr. NCI (SFP)
4,476
Cr. Retained Profit b/f
4,476
(To record dilution from change in stake from 20% to 40%)
AB Bhd and Subsidiary

Consolidated Statement of Comprehensive Income
for the year ended 31 December 2002
Turnover
Less: Expenses
Gain on disposal
Less: Taxation
Attributable to:
Non-controlling interest
Equity holders of the parent
Retained profits brought
forward
Retained profits carried
forward
AB Bhd XY Bhd
DR
CR
RM000 RM000 RM000 RM000
15,000
6,800
12,000
4,000
3,000
2,800
5,000
5,000
8,000
2,800
2,400
840
5,600
1,960
588
5,900
11,500
3,640
5,600
1,600
728
GROUP
RM000
21,800
(16,000)
5,800
0
5,800
(3,240)
2,560
588
1,972
4,476
11,688
13,660
Consolidated Statement of Financial Position as at 31 December 2002
Share capital of RM1

each
Retained profits
Non-controlling
interest
Sundry net assets
Goodwill on
consolidation
AB Bhd XY Bhd
DR
CR
GROUP
RM000 RM000 RM000 RM000 RM000
20,000 10,000 8,000
20,000
2,000
11,500
5,600
13,660
4,476
3,828
8,440
8,500
588
31,500 15,600
42,100
10,500
21,000
15,600
3,500
4,400
1,100
31,500
15,600
14,000
0
32,524
5,500
42,100
Disposal of shares with retention of

an Associate status
In this situation, the parent will consolidate the financial
statements until the effective date of disposal, as the
disposal of shares will change the status of the
subsidiary to become an associate.
Retained earning b/f shall include post-acquisition profit
After the effective date of disposal, the carrying amount

of the remaining interest should be accounted under
equity method (MFRS128).
The adjustment of the gain or loss disposal needs to be
done in the current years profit and loss account.
The difference between fair value & its carrying amount
of remaining stake is included in the gain/loss of disposal
Illustration 3.6
AB Bhd acquired a 80% interest in XY Bhd on 1 January 2000 for a
RM2,000,000.
On 30 June 2002, AB Bhd sold 4,000,000 shares in in XY Bhd for a
cash consideration of RM12,000,000. The remaining interest was
measure at fair value as RM8,500,000.
Illustration 3.6
Profit and Loss Account for the year ended
31 December 2002
AB Bhd
RM000
XY Bhd
RM000
Turnover
10,000
6,800
Less: Expenses
12,000
4,000
5,000
3,000
2,800
900
840
2,100
1,960
5,900
3,640
8,000
5,600
Less: Taxation
Illustration 3.6
Balance sheet as at 31 December 2002
AB Bhd
RM000
Retained profits
Investment in XY Bhd, at cost

Sundry net assets
XY Bhd
RM000
20,000
10,000
8,000
5,600
28,000
15,600
7,000
21,000
15,600
28,000
15,600
Illustration 3.6
Required:
a) Calculate the gain or loss arising from the
disposal of shares in XY Bhd.
December 2002.
Solution
(a)
Date of CFS = 31 December 2002
% Disposed of subsidiarys shares = 4m/10m units
= 40%
COI disposed = (14,000,000 / 8) x 4 = 7,000,000
1 January 2000 30 June 2002= 80% ; NCI = 20%
30 June 2002 31 December 2002 = 40% (Associate company)
Solution
Calculation of goodwill for 80%
interest:
RM000
Cost of investment
14,000
Less: Net Identifiable assets
Share Capital
8,000 (80% x 10,000)
Retained profits
1,600 (80% x 2,000)
Goodwill on consolidation 4,400
Solution
gain or loss on re-measurement remaining stake:
Add: Post-acquisition reserves
-brought forward
(3,640 2,000) x 50% x 80%
(1,960 x 6/12) x 50% x 80%
Carrying amount at disposal date
Less: FV of remaining stake
Re-measurement Gain
RM000
7,000
656
392
8,048
8,500
452
Solution
gain or loss on disposal of shares
Sales proceeds
RM000
12,000
7,000
Gain to parent
-brought forward
(3,640 2,000) x 50% x 80%
(1,960 x 6/12) x 50% x 80%
5,000
(+) Re-measurement Gain

Gain to group
452*
4,404
(656)
(392)
Solution
RM 000
DR Gain on disposal of shares
656
DR Investment in associate
656
CR Retained profit brought forward
1,312
(To adjust disposal of shares in subsidiary for post acquisition b/f and account
for associate)
DR
DR
DR
DR
DR
Expenses
(4,000 x 6/12)
2,000
392
Taxation expenses
(840 x 6/12)
420
Minority interest (P&L)(1,960 x20% x 6/12) 196
Investment in associate
392
CR Turnover (6,800x6/12)
3,400
(To consolidate the result of XY Bhd for the 6 month period, adjust account for
its subsequent realization and account for associate)
Solution
DR. Share of taxation in associate(840 x 40% x 6/12) 168
DR. Investment in associate(1,960 x 40% x 6/12) 392
CR. Share of profit in associate
560
(2,800 x 40% x 6/12)
(To equity account for share of profit of XY Bhd for the 6 months
after disposal)
Dr. Investment in associate
Cr. Gain on disposal
452
452
(c)
AB Bhd
Consolidated Profit and Loss Account for the year ended 31 December 2002
Turnover
Less: Expenses
AB Bhd XY Bhd
DR
CR
RM000 RM000 RM000 RM000
10,000
0
3,400
12,000
5,000
3,000
2,000
656
392
452
900
2,100
560
420
(1320)
168
(168)
Minority interest
4,404
3804
560
Share of tax in associate

14,000
Share of profit in associate

Less: Taxation
GROUP
RM000
13,400
2876
196
(196)
Retained profit for the year
2680
5,900
8,000
1,312
7212
9,892
Consolidated Balance sheet as at 31 December 2002
Share capital of
RM1 each
Retained profits
Investment in
associate
Sundry net assets
AB Bhd XY Bhd
DR
RM000 RM000 RM000
20,000
0
8,000
28,000
7,000
21,000
28,000
0
15,600
CR
RM000
GROUP
RM000
20,000
9,892
29,892
656
392
392
452
8,892
21,000
29,892
Disposal of shares with retention of a

Simple Investment
In this situation, the parent will consolidate the financial
statements until the effective date of disposal, as the
disposal of shares will change the status of the subsidiary
to become simple investment (IAS 25).
After the effective date of disposal, the carrying amount of
the remaining interest should be accounted under cost
method.
The adjustment of the gain or loss disposal needs to be
done in the current years profit and loss account.
The remaining stake should re-measured to Fair Value.
Re-measurement gain/loss is included in gain/loss on
disposal
Illustration 3.7
AB Bhd acquired a 80% interest in XY Bhd on 1 January 2000 for a
RM2,000,000.
On 30 June 2002, AB Bhd sold 6,000,000 shares in in XY Bhd for a
cash consideration of RM15,500,000. The remaining interest was
measure at fair value as RM5,000,000.
Illustration 3.7
Profit and Loss Account for the year ended 31 December 2002
AB Bhd
RM000
XY Bhd
RM000
Turnover
10,000
6,800
Less: Expenses
12,000
4,000
5,000
3,000
2,800
900
840
2,100
1,960
5,900
3,640
8,000
5,600
Less: Taxation
Illustration 3.7
Balance sheet as at 31 December 2002
AB Bhd
RM000
Retained profits
Investment in shares, at cost
Sundry net assets
XY Bhd
RM000
20,000
10,000
8,000
5,600
28,000
15,600
3,500
24,500
15,600
28,000
15,600
Illustration 3.7
Required:
a) Calculate the gain or loss arising from the
disposal of shares in XY Bhd.
December 2002.
Solution
Date of CFS = 31 December 2002
% Disposed of subsidiarys shares = 6m/10m units
= 60%
COI disposed = (14,000,000 / 8) x 6 = 10,500,000
1 January 2000 30 June 2002 = 80%; NCI = 20%
30 June 2002 31 December 2002 = 20%
(Simple investment company)
Solution
Calculation of goodwill for 80%
interest:
RM000
Cost of investment
14,000
Less: Net Identifiable assets
Share Capital
8,000 (80% x 10,000)
Retained profits
1,600 (80% x 2,000)
4,400
Solution
gain or loss on re-measurement of
remaining shares:
Add: Post acquisition reserves
-brought forward
(3,640 2,000) x 20%
(1,960 x 6/12) x 20%
Carrying amount
Remeasurement to FV
RM000
3,500
328
196
4,024
5,000
976
Solution
gain or loss on disposal of shares
Sales proceeds
RM000
15,500
10,500
Gain to parent
-brought forward
(3,640 2,000) x 75% x 80%
(1,960 x 6/12) x 75% x 80%
Add: Gain on re-measurement
5,000
Gain/loss to group
4,404
(984)
(588)
976
Solution
RM 000
DR
Gain on disposal of shares 984
DR
Investment in shares
328
(3,640 2,000 x 20%)
CR Retained profit brought forward
1,312
(To adjust disposal of shares in subsidiary for post acquisition b/f and
account for simple investment)
DR
Expenses (4,000 x 6/12) 2,000
DR
Gain on disposal of shares 588
DR
Taxation expenses (840 x 6/12) 420
DR
Minority interest (profit & loss) 196 (1,960 x20% x 6/12)
DR
Investment in shares
196 (1,960 x 20% x 6/12)
CR Turnover (6,800x6/12)
3,400
(To consolidate the result of XY Bhd for the 6 month period, adjust
account for its subsequent realization and account for simple investment)
Solution
RM 000
DR Investment in shares
976
CR Gain on disposal of shares
(To remeasure remaining stake to fair value)
976
Solution
Consolidated Profit and Loss Account for the year ended 31 December
AB Bhd2002
XY Bhd
DR
CR
GROUP
Turnover
Less: Expenses
RM000 RM000 RM000 RM000 RM000

10,000
0
3,400 13,400
12,000
0
2,000
14,000
5,000
984
976
4,404
588
3,000
Less: Taxation
900
2,100
0
0
NCI
Retained profit for the year
5,900
8,000
3,804
420
1,320
2,484
196
196
2,288
1,312
7212
9,500
Solution
Consolidated Balance sheet as at 31 December 2002
AB Bhd
RM000
XY Bhd
RM000
DR
RM000
CR
RM000
GROUP
RM000
Share capital of
RM1 each
20,000
20,000
Retained profits
8,000
9,500
28,000
Investment in
shares
Sundry net assets
29,500
3,500
328
196
976
5,000
24,500
24,500
28,000
15,600
29,500
End of the Chapter

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CHANGES IN

Example 2.14 (TLT:pg. 97) pra-rata basis

Business combination achieved in stages (MFRS3: para 42)

the amount that was recognised in other

On 1 June 2010, the previously held 15% interest and the

Share Capital of RM1.00

Sundry net assets

Cost of investment (45%)

FV of previously held interest (15%)

Share Capital (40% x 150)

On 1 January 2009, Seroja Bhd increases its stakes in the two

Cash paid (RM)

Seroja Bhd assumes control of the two companies on 1 January 2009.

FV of previously held equity interest:

FV of previously held equity

Solution 3.2 (cont):

FV of previously held equity

(-) Carrying amount immediately

(+) FV reserved recycled

Solution 3.2 (cont):

Other illustration : Example 3.13 (pg 146)

Successive purchases of shares

Profit for the period

Retained profits brought forward

Retained profits brought forward

Sundry net assets

Cost of investment (70%)

FV NIA (10 + 10)

Transfer to parent (10/30)

20% interest carried forward

Negative movement in equity

Post-acquisition RE (1/1/2010) = 31,000 10,000 = 21,000

Retained profits (b/f)

Disposal of shares in subsidiary

Different gain/loss on disposal from

Disposal of shares in subsidiary

Disposal of shares in subsidiary

Add: Goodwill impaired

Gain/loss on disposal (group)

Disposal of shares in subsidiary

Less: Goodwill remaining

Total disposal of shares

Gain on disposal of shares

Profit before taxation

Profit for the period

Retained profits brought forward

Retained profits carried forward

Sundry net assets

Gain or loss on disposal of shares;

Share capital of RM1

Disposal of shares with retention of

Profit before taxation

Profit for the period

Retained profits brought forward

Retained profits carried forward

Share capital of RM1 each

Investment in XY Bhd, at cost

Sundry net assets

Positive movement in parent equity

Share capital (80% x 10,000)

(To credit non-controlling interest of current years profit)

(To reverse gain on disposal in parents a/c and to record NCI)

AB Bhd and Subsidiary