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ACCA Strategic Professional · Strategic Business Reporting (International) · Associates and joint arrangements

Alpha holds 30% of Beta, an associate accounted for under the equity method. Alpha sells a 10% interest in Beta for cash, retaining 20% and significant influence. How should Alpha account for the disposal in its consolidated financial statements?

Alpha recognises a gain or loss in profit or loss on the 10% sold and keeps applying the equity method to the remaining 20%, because significant influence is retained and so the retained interest is not remeasured to fair value.

  1. ARecognise a gain or loss in profit or loss on the 10% sold and continue to apply the equity method to the remaining 20%Correct
  2. BRemeasure the remaining 20% to fair value through profit or loss and recognise a gain on the whole 30%
  3. CRecognise the gain on disposal in other comprehensive income and stop equity accounting
  4. DAdjust the carrying amount of the associate through equity with no gain or loss, as control is not lost

Explanation

Where significant influence is retained, the equity method continues and no remeasurement of the retained interest occurs. The gain or loss on the portion disposed of is recognised in profit or loss. Remeasurement to fair value applies only when significant influence or joint control is lost. Equity adjustment without gain applies to subsidiary disposals without loss of control, not associates.

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