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Strategic Business Reporting (International) · Group accounting including statements of cash flows

Step Acquisitions and Disposals of Subsidiaries in ACCA SBR

Updated 11 October 2026 · Fact-checked

A step acquisition is when control is gained in stages. Under IFRS 3 you remeasure the old stake to fair value and take the gain to profit or loss. On disposal with loss of control, IFRS 10 requires a gain or loss on sale proceeds, retained stake at fair value, less net assets and goodwill.

Understand Step Acquisitions and Disposals of Subsidiaries

Control, not percentage ownership, decides how you account. When a parent buys more shares in an entity it already controls, or sells shares but keeps control, nothing is gained or lost in profit or loss. The change is a transaction between owners and goes to equity. When control is gained or lost, the group has a major event. It is treated as if the group has bought or sold the whole business.

In a step acquisition (business combination achieved in stages) an investor holds a stake first, say as an investment under IFRS 9 or as an associate under IAS 28, then buys more and gains control. IFRS 3 says you treat this as if the previous stake was sold and the whole subsidiary then bought. So you remeasure the previously held interest to fair value at the acquisition date. Any gain or loss goes to profit or loss. If amounts were previously in OCI, you reclassify them only if that would be required on disposal of the stake. Gains on an equity investment designated at fair value through OCI under IFRS 9 are not recycled, so you may move them within equity.

Goodwill is then calculated once, at the date control is gained. It uses the consideration for the new stake, the fair value of the old stake, the non-controlling interest (NCI), less the fair value of net assets at that date. NCI is measured at fair value or at its proportionate share of net assets, as the question says.

A change in ownership without loss of control is an equity transaction. You compare the consideration paid or received with the change in NCI. The difference goes to the parent's equity. Goodwill is not changed and no gain or loss reaches profit or loss.

A disposal with loss of control is different. You derecognise the subsidiary's assets, liabilities, goodwill and NCI. You recognise the proceeds and any retained interest at fair value. The difference is a gain or loss in group profit or loss. Any retained stake is then an associate, joint venture or financial asset. That fair value becomes its cost on initial recognition. Amounts in OCI relating to the subsidiary are reclassified or moved within equity as other IFRS Standards require.

Key rules to remember

Goodwill in a step acquisition
Goodwill = consideration for new stake + fair value of previously held interest + NCI − fair value of net assets at acquisition date
All measured at the date control is gained. NCI is at fair value or proportionate share of net assets, as the question states.
Gain on remeasuring previous stake
Gain or loss = fair value of old stake at acquisition date − carrying amount of old stake
For an associate, or an investment measured at FVPL, the gain or loss goes to group profit or loss. For an associate, the carrying amount includes share of post-acquisition profits under the equity method. Any share of the associate's OCI that would be reclassified to profit or loss on disposal is also recycled into the gain or loss on the old stake. For an equity investment designated at FVOCI under IFRS 9, the remeasurement to fair value before the acquisition is recognised in OCI, not profit or loss. The old OCI balance is not recycled, though you may move it within equity.
Change in ownership without loss of control
Adjustment to parent equity = consideration paid or received − change in NCI carrying amount
No profit or loss effect and no change to goodwill. Shown in the statement of changes in equity.
NCI change on a sale of shares (control kept)
Increase in NCI = (net assets at disposal date + unimpaired goodwill attributable to NCI, only if the full goodwill method was used) × % of shares sold
Include goodwill attributable to NCI only if NCI was measured at fair value (full goodwill method). If NCI was measured at proportionate share of net assets, use net assets only.
Group gain or loss on disposal with loss of control
Gain or loss = proceeds + fair value of retained interest − (net assets of subsidiary at disposal date + unimpaired goodwill − carrying amount of NCI)
Net assets and goodwill are as in the consolidated statements at the disposal date. Add any amounts reclassified from OCI where required.
Gain or loss in the parent's own books
Parent's gain or loss = proceeds − carrying amount of the investment sold
This is the individual entity figure. It differs from the group figure and tax is usually based on it.

How to solve Step Acquisitions and Disposals of Subsidiaries questions

Use this method for any question on piecemeal acquisitions or disposals. Read the dates carefully, because the date control changes drives everything.

  1. 1Decide the type of event. Is control gained, lost, or unchanged? Look at ownership percentages, voting rights and board control, not just the percentage.
  2. 2Write down the key date and the data at that date: fair values, net assets, share price of the old stake, and the NCI measurement basis.
  3. 3For a gain of control: remeasure the old stake to fair value and record the gain or loss in profit or loss. Then calculate goodwill in one workings table.
  4. 4For a change without loss of control: calculate the NCI share of net assets (plus goodwill if NCI is at fair value). Compare it with the consideration and put the difference in parent equity.
  5. 5For a loss of control: calculate the profit or loss up to the disposal date. Include the subsidiary's results in the group P&L for that period only. Then compute the gain or loss on disposal with the formula.
  6. 6Account for any retained stake at fair value as an associate, joint venture or financial asset. Apply the correct standard after that date.
  7. 7Show the tax effect or other adjustments if the question gives them. Then tie your numbers into the consolidated statements, such as group retained earnings.
  8. 8Add a short comment on the treatment and reason, citing IFRS 3 or IFRS 10. This earns the professional skills marks.

Quickest way: Three-question triage

When to use it: Use this when time is short and you must decide the treatment fast, then compute only what the question asks.

  1. Ask: did control change? If no, it is an equity transaction. Put the difference in equity and stop.
  2. If control was gained, fair value the old stake, post the gain, and run one goodwill table.
  3. If control was lost, use one line: proceeds + retained stake at fair value − net assets − goodwill + NCI.
  4. Label every number with its date, then write one sentence on the standard applied.

Common mistakes in Step Acquisitions and Disposals of Subsidiaries

  • Recognising a gain or loss in profit or loss when the parent sells shares but keeps control.

    Students treat every sale like a sale of an investment.

    Fix: Ask whether control is lost. If not, it is an equity transaction between owners and goes to parent equity.

  • Adding the cost of the old stake into goodwill instead of its fair value.

    Students carry over the historic cost or associate carrying amount by habit.

    Fix: Remeasure the old stake to fair value at the date control is gained. Use that fair value in goodwill and post the difference to profit or loss.

  • Recalculating goodwill when more shares are bought after control exists.

    It feels like a new acquisition.

    Fix: Goodwill is fixed at the date control was gained. Later purchases only change NCI and equity.

  • Leaving out goodwill, or including impaired goodwill, in the disposal calculation.

    Students focus on net assets and forget consolidated carrying amounts.

    Fix: Use net assets at the disposal date plus the carrying amount of goodwill after impairment. Remove NCI too.

  • Ignoring the retained stake after a partial disposal.

    The question focuses on the shares sold.

    Fix: Fair value the retained interest at the date control is lost. Include it in the gain calculation and treat it as an associate or financial asset thereafter.

  • Consolidating the full year's results of a subsidiary sold part-way through the year.

    Students copy the standard consolidation layout.

    Fix: Time-apportion the subsidiary's profit or loss up to the disposal date. Show the gain on disposal as a separate line.

Worked examples

Example 1

Alpha bought 30% of Beta on 1 April 20X1 for $3m. At 31 March 20X4 the carrying amount of the associate was $4.2m. On 1 April 20X4 Alpha paid $6m for a further 40%, gaining control. The fair value of the original 30% was $4.8m. The fair value of Beta's identifiable net assets at 1 April 20X4 was $12m. NCI is measured at fair value, $3.4m. Calculate goodwill and the gain on the original stake.

Show the solution
  1. Control is gained on 1 April 20X4, so IFRS 3 step acquisition rules apply.
  2. Gain on old stake = fair value $4.8m − carrying amount $4.2m = $0.6m, recognised in profit or loss.
  3. Any share of Beta's OCI that would be reclassified to profit or loss on disposal would also be recycled into this gain. No such amounts are given here, so the gain stays at $0.6m.
  4. Goodwill = consideration $6m + fair value of old stake $4.8m + NCI $3.4m − net assets $12m.
  5. Goodwill = $14.2m − $12m = $2.2m.

Answer: The gain on the previously held 30% interest is $0.6m in group profit or loss. Goodwill is $2.2m.

Example 2

Delta owns 80% of Echo. Echo's net assets at 31 December 20X3 are $50m. Goodwill from the original acquisition is $5m, carried after impairment. NCI was measured at the proportionate share of net assets, so goodwill relates only to Delta. On that date Delta sells 60% of the shares in Echo (reducing its holding from 80% to 20%) for $40m. The fair value of the retained 20% is $13m. The carrying amount of NCI before the sale is $10m (20% of $50m). Calculate the group gain on disposal.

Show the solution
  1. Delta sells 60% of the shares in Echo, so its holding falls from 80% to 20%. Control is lost, so IFRS 10 applies.
  2. Net assets plus goodwill = $50m + $5m = $55m.
  3. Less NCI carrying amount: $55m − $10m = $45m, the amount attributable to Delta to be derecognised.
  4. Proceeds plus retained stake = $40m + $13m = $53m.
  5. Gain = $53m − $45m = $8m.

Answer: The group recognises a gain of $8m in profit or loss. The retained 20% is recorded at $13m as an associate (if significant influence exists) or a financial asset.

Exam tips

  • Highlight the dates and percentages in the scenario first. Control usually changes at one clear date, and every number must be measured then.
  • Say the reason for the treatment, such as 'control is lost, so IFRS 10 requires a gain in profit or loss'. Examiners award marks for explanation as well as numbers.
  • Set out workings in a clean table for goodwill and for the disposal. Method marks are given even if one input is wrong.
  • Distinguish the group gain from the parent's own gain on the investment. Questions often ask for both, or for the effect on consolidated retained earnings.
  • Check the NCI basis (fair value or proportionate) before you start goodwill or disposal workings.

Practice questions from Group accounting including statements of cash flows

Step Acquisitions and Disposals of Subsidiaries in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Step Acquisitions and Disposals of Subsidiaries: frequently asked questions

What is a step acquisition under IFRS 3?

It is a business combination achieved in stages. The acquirer remeasures its previously held interest to fair value at the date control is gained. Any gain or loss goes to profit or loss, and goodwill is measured at that date.

What is the difference between loss of control and a change in ownership interest?

With a change in ownership interest, the parent keeps control, so the effect goes to equity and no gain or loss is recognised. With loss of control, the group derecognises the subsidiary and recognises a gain or loss in profit or loss. Any retained stake is remeasured to fair value.

How do I calculate the profit on disposal of a subsidiary in SBR?

Add the proceeds and the fair value of any retained interest. Deduct the subsidiary's net assets and unimpaired goodwill at the disposal date, and add back the carrying amount of NCI. Include any amounts reclassified from OCI where required.

Is goodwill recalculated when a parent buys more shares after gaining control?

No. Goodwill is fixed at the date control was gained. Extra purchases change the NCI and parent equity only, with no goodwill or profit or loss effect.