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

Epsilon plc held 40% of Zeta Ltd, an associate with a carrying amount of $20m. It sold 25% for $18m, leaving a 15% holding with a fair value of $10.8m. Significant influence was lost and the remaining stake is a financial asset at fair value through profit or loss. Ignoring OCI balances, what gain or loss is recognised in profit or loss?

The gain is $8.8m. Proceeds of $18m plus the $10.8m fair value of the retained 15% total $28.8m, less the $20m carrying amount of the associate. The retained interest is remeasured to fair value on losing significant influence.

  1. A$8.8m gainCorrect
  2. B$2.0m loss
  3. C$8.8m loss
  4. D$(2.0)m gain

Explanation

On loss of significant influence, profit or loss includes proceeds plus the fair value of the retained interest less the carrying amount: 18 + 10.8 - 20 = $8.8m gain. Option with $2.0m ignores the retained interest fair value.

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