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ACCA Strategic Professional · Strategic Business Reporting (International) · Non-current assets

Elm plc plans to sell its 70% subsidiary Fir, and the criteria for held for sale are met at the reporting date. Elm intends to sell only a 30% interest, which will reduce its holding to 40% and result in significant influence but loss of control. Fir's net assets in the group accounts are $2,000,000 and goodwill is $200,000, with no non-controlling interest adjustments needed beyond that. Which statement is correct?

All of Fir's assets and liabilities are classified as held for sale. Under IFRS 5, a plan to lose control of a subsidiary triggers classification of the entire subsidiary as a disposal group, even if the parent keeps a non-controlling interest such as an associate stake afterwards.

  1. AOnly the 30% to be sold is classified as held for sale, and Fir is still consolidated line by line
  2. BFir is not held for sale because Elm will retain an interest in it
  3. CAll of Fir's assets and liabilities are classified as held for sale, because loss of control is planned, even though an interest is retainedCorrect
  4. DFir's assets and liabilities are classified as held for sale only to the extent of goodwill of $200,000

Explanation

IFRS 5 applies when a plan involves loss of control of a subsidiary, and all of that subsidiary's assets and liabilities are classified as held for sale, regardless of any retained interest. Partial classification is not allowed, so the first and fourth options are wrong.

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