Corporate Financial Reporting · Consolidated Financial Statements and Separate Financial Statements

Changes in Ownership: Step Acquisition, Disposal and Bonus Shares

Updated 11 October 2026 · Fact-checked

Changes in ownership are accounted by one test: does the parent keep or lose control? If control is kept, the change is an equity transaction with no gain or loss. If control is lost, derecognise the subsidiary, recognise the retained stake at fair value, and book the gain or loss in profit or loss.

Understand Changes in Ownership: Step Acquisition, Disposal and Bonus Shares

Start with one question: after the change, does the parent still control the subsidiary? Everything else follows from the answer.

If the parent keeps control, the change is an equity transaction. Ind AS 110 (para 23) says changes in a parent's ownership interest that do not result in loss of control are transactions with owners in their capacity as owners. So buying more shares or selling some, while staying a parent, creates no goodwill change and no profit or loss. You adjust non-controlling interest (NCI) and equity attributable to owners of the parent.

If the parent loses control, it is treated as a disposal of the whole business. Under para 25 and B98, the parent derecognises the assets (including goodwill) and liabilities of the former subsidiary at their carrying amounts, derecognises NCI, recognises the consideration received at fair value, and recognises any retained investment at fair value. The difference is a gain or loss in profit or loss attributable to the parent. Amounts held in OCI for that subsidiary are treated as if the parent had disposed of the related assets directly (B99): reclassify to profit or loss where that would apply, or transfer a revaluation surplus to retained earnings.

The retained stake at fair value is regarded as its initial recognition value. It becomes a financial asset under Ind AS 109, or the cost of an associate or joint venture under Ind AS 28 (para 25(b)).

Step acquisition (acquisition in stages) is different. When an investor gets control by buying more shares in an entity it already holds, it is a business combination achieved in stages under Ind AS 103. Remeasure the earlier stake to fair value at the acquisition date, take the gain or loss to profit or loss, and compute goodwill on the total. Ind AS 103 is not in the text supplied here, so learn its rule from your study material.

Bonus shares issued by a subsidiary out of its reserves do not change anyone's percentage holding or the subsidiary's total net assets. They only move reserves into share capital. In consolidation, post-acquisition reserves can fall, so check which reserves were capitalised: pre-acquisition or post-acquisition. This changes the split between capital and revenue profits, not total equity.

Key rules to remember

Control kept: Change in holding with control retained = equity transaction; no gain or loss in P&L; Ind AS 110 para 23. Adjust NCI and parent's equity.
Adjustment to equity (control kept): Difference = Consideration − Carrying amount of NCI transferred; For part disposal, NCI increases by its share of net assets plus goodwill. Take the difference to equity (retained earnings or other reserve).
Gain or loss on loss of control: Gain or loss = (Fair value of consideration + Fair value of retained stake + Carrying amount of NCI) − Carrying amount of the subsidiary's net assets (including goodwill); Ind AS 110 B98. Add OCI reclassification per B99. Attribute to the parent.
Retained stake: Retained investment recognised at fair value on the date control is lost; Para 25(b). This is the initial cost for an associate or the initial fair value for a financial asset.
Step acquisition (control obtained): Goodwill = Consideration + Fair value of earlier stake + NCI − Net identifiable assets at acquisition date; Ind AS 103 treatment; the old stake is remeasured with gain or loss in P&L.
Bonus issue: Bonus shares = Existing shares × bonus ratio; the percentage holding is unchanged; Total equity unchanged. Only the split between share capital and reserves changes.

How to solve Changes in Ownership: Step Acquisition, Disposal and Bonus Shares questions

Use this order for any question on a change in holding. Decide the control outcome first, because it fixes the entire treatment.

1Find the holding before and after the change, and the date of the change.
2Decide whether control is gained, kept or lost. A holding above 50% is not the only test; check the facts given.
3If control is kept, treat it as an equity transaction: compute the change in NCI and take the difference to equity. Do not record any profit or loss.
4If control is lost, compute the subsidiary's net assets at the date of loss, including goodwill, and its NCI at carrying amount.
5Recognise the consideration and the retained stake at fair value, reclassify any OCI items, and compute the gain or loss attributable to the parent.
6If control is gained in stages, remeasure the old stake to fair value, take the gain or loss to P&L, and compute goodwill on the full holding.
7For bonus shares, note which reserves are capitalised and restate the pre- and post-acquisition reserves; the percentage and total equity stay the same.
8Show the consolidated working: NCI, goodwill, reserves and the adjustment to equity or P&L, then state the answer.

Quickest way: Control test first, then one working

When to use it: Use when the question gives a holding change and asks for the effect on consolidated profit, equity or NCI, and time is short.

Write Control: kept or lost, in one word.
Kept: compute NCI after the change and book the difference to equity. Nothing goes to P&L.
Lost: compute Consideration + Fair value of retained stake + NCI − Net assets including goodwill.
Check that the sign is right: a positive figure is a gain.
For bonus shares, write the ratio and say that total equity is unchanged.

Common mistakes in Changes in Ownership: Step Acquisition, Disposal and Bonus Shares

Booking a profit on sale of shares in the P&L when the parent keeps control.
Students copy the single-entity treatment of a sale, where proceeds minus cost is a gain.
Fix: If control is kept, para 23 says it is an equity transaction. Take the difference between consideration and the NCI adjustment to equity.
Ignoring the retained stake when control is lost.
Students stop at the shares actually sold.
Fix: Recognise any retained investment at fair value on the date control is lost (B98(b)(iii)) and include it in the gain or loss.
Leaving goodwill out of the net assets derecognised.
The question gives only the subsidiary's balance sheet.
Fix: B98(a)(i) derecognises the assets including goodwill. Add the unimpaired goodwill from the consolidated working.
Forgetting OCI balances relating to the subsidiary.
OCI items are small in the question and easy to miss.
Fix: Under B99, reclassify to profit or loss what would be reclassified on direct disposal, and move a revaluation surplus to retained earnings.
In a step acquisition, using the old cost of the earlier stake in goodwill.
Students carry the old investment figure over from the books.
Fix: Remeasure the earlier stake to fair value at the date control is obtained, book the gain or loss, and use that fair value in goodwill.
Treating bonus shares as a cost or as changing the holding percentage.
Students see new shares and assume new investment.
Fix: A bonus issue to all holders in proportion changes no percentage and no net assets. No cash flows, no extra investment cost.

Worked examples

Example 1

P Ltd holds 80% of S Ltd. The carrying amount of S Ltd's net assets in the consolidated statements, including goodwill of ₹10,00,000, is ₹1,00,00,000. NCI is carried at ₹20,00,000. P Ltd sells 10% of S Ltd's shares for ₹12,00,000 and keeps control. Compute the effect on NCI and equity.

Show the solution

Control is kept, so this is an equity transaction under para 23. No gain or loss in P&L.
10% of the net assets of ₹1,00,00,000 = ₹10,00,000. This is the amount transferred to NCI.
NCI after = ₹20,00,000 + ₹10,00,000 = ₹30,00,000 (30% holding of ₹1,00,00,000 gives the same).
Consideration received = ₹12,00,000. Difference = ₹12,00,000 − ₹10,00,000 = ₹2,00,000.
The ₹2,00,000 is credited to equity attributable to the owners of P Ltd.

Answer: NCI rises by ₹10,00,000 to ₹30,00,000. Equity of P Ltd's owners rises by ₹2,00,000. Nothing goes to profit or loss.

Example 2

P Ltd holds 70% of S Ltd. The carrying amount of S Ltd's net assets in the consolidated statements, including goodwill, is ₹90,00,000, and the carrying amount of NCI is ₹27,00,000. P Ltd sells 40% of S Ltd for ₹50,00,000, which loses control. The remaining 30% has a fair value of ₹36,00,000. There are no OCI items. Compute the gain or loss on loss of control.

Show the solution

Control is lost, so apply B98 and para 25.
Add up the items recognised: consideration ₹50,00,000 + retained stake at fair value ₹36,00,000 + NCI carrying amount ₹27,00,000 = ₹1,13,00,000.
Deduct the amount derecognised, which is the net assets including goodwill: ₹90,00,000.
Gain = ₹1,13,00,000 − ₹90,00,000 = ₹23,00,000.
Because the subsidiary's net assets are derecognised, the NCI of ₹27,00,000 is also derecognised. That is why it is added in the formula.
The retained 30% stake is recognised at ₹36,00,000. It becomes an associate (cost for the equity method) or a financial asset, depending on influence.

Answer: Gain on loss of control = ₹23,00,000, recognised in profit or loss attributable to the parent. The retained investment is carried at ₹36,00,000.

Exam tips

Write the control conclusion in the first line of the answer. Examiners award marks for the correct classification before the numbers.
For part disposals, show the NCI working clearly, even if the final figure is small.
In loss of control questions, list consideration, retained stake, NCI and net assets in separate lines so a single slip does not cost the whole answer.
For MCQs, check whether control is kept. If so, the answer is almost never a P&L gain.
For bonus shares, state that total equity and percentage holding are unchanged, then deal with the reserves split only if the question asks for it.

Practice questions from Consolidated Financial Statements and Separate Financial Statements

Changes in Ownership: Step Acquisition, Disposal and Bonus Shares: frequently asked questions

Is a part disposal of a subsidiary always a profit in the consolidated P&L?

No. If the parent keeps control, the sale is an equity transaction under Ind AS 110 para 23, so no gain or loss is recognised in profit or loss. A P&L gain or loss arises only when control is lost.

How is the retained stake measured after control is lost?

It is recognised at fair value on the date control is lost. That fair value is the initial fair value of a financial asset under Ind AS 109 or the cost on initial recognition of an associate or joint venture.

What happens to OCI balances when control of a subsidiary is lost?

The parent accounts for them as if it had directly disposed of the related assets or liabilities (B99). Items that would be reclassified to profit or loss are reclassified, and a revaluation surplus moves directly to retained earnings.

Do bonus shares issued by a subsidiary change the consolidation?

Not in total. A proportionate bonus issue does not change the holding percentage or net assets. It only moves reserves into share capital, so identify which reserves were capitalised when splitting pre- and post-acquisition profits.

How is a step acquisition different from a part disposal?

In a step acquisition the investor gains control in stages. Under Ind AS 103 it remeasures its earlier stake to fair value, takes the gain or loss to profit or loss, and computes goodwill on the whole. A part disposal with control kept involves no such remeasurement.