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

Alpha holds 30% of Beta as an associate, carried at $4.2m in the consolidated statements. Alpha buys a further 40% for $6m cash and gains control. The fair value of the original 30% is $4.5m. Under IFRS 3, how is the existing 30% interest treated at the acquisition date?

The existing associate stake is remeasured to fair value at the date control is obtained, and the $0.3m gain over the carrying amount is recognised in profit or loss. The previous interest is treated as disposed of and reacquired, so goodwill uses this fair value.

  1. ARemeasured to $4.5m, with the $0.3m gain recognised in profit or lossCorrect
  2. BKept at $4.2m carrying amount with no adjustment
  3. CRemeasured to $4.5m, with the $0.3m gain recognised in other comprehensive income
  4. DRemeasured to $4.5m, with the $0.3m gain recognised directly in equity

Explanation

A business combination achieved in stages is treated as if the previous interest were disposed of and reacquired at fair value. The gain of $4.5m less $4.2m is $0.3m and goes to profit or loss. Taking it to equity or OCI is wrong, because that applies to changes in control-retaining stakes or to FVOCI equity investments (where the gain is already in OCI and not recycled).

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