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

Alpha plc holds 30% of Beta Ltd, an associate accounted for under the equity method. Alpha sells a 10% interest in Beta for cash and retains a 20% holding, still with significant influence. How should Alpha treat the disposal in its consolidated financial statements?

Alpha recognises a gain or loss in profit or loss on the 10% sold and continues equity accounting for the retained 20%. The associate relationship persists, so there is no remeasurement of the remainder, and the equity-transaction rule applies only to subsidiaries.

  1. ARecognise a gain or loss in profit or loss on the 10% disposed of, with the equity method continuing on the remaining 20%Correct
  2. BRecognise the difference between proceeds and carrying amount directly in equity, as no control is lost
  3. CReclassify the whole investment to a financial asset at fair value and remeasure the remaining 20%
  4. DDefer the gain until Alpha disposes of its remaining 20% interest

Explanation

Where significant influence is retained, the equity method continues and the gain or loss on the part disposed of goes to profit or loss. Amounts previously in OCI relating to the disposed portion are reclassified proportionately where required. Equity treatment applies only to changes in a subsidiary without loss of control.

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