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

Gamma owns 25% of Delta, an associate. On 1 July 20X5 Gamma sells 15% of Delta for $9m, losing significant influence; the remaining 10% has a fair value of $6m and is accounted for as a financial asset at fair value through profit or loss. The carrying amount of the 25% investment at 1 July 20X5 is $12m. Cumulative associate gains of $1m are in other comprehensive income, to be reclassified in full (assume this is reclassifiable). What is the gain recognised in profit or loss on loss of significant influence?

The profit or loss gain is $4m: proceeds of $9m plus the retained interest's fair value of $6m, less the $12m carrying amount, gives $3m, plus $1m of OCI reclassified to profit or loss when significant influence is lost.

  1. A$4mCorrect
  2. B$3m
  3. C$2m
  4. D$6m

Explanation

Gain = proceeds $9m + fair value of retained interest $6m - carrying amount $12m = $3m. Add the reclassified OCI gain of $1m, giving $4m. The $3m option omits the OCI reclassification. The $2m option subtracts the OCI instead of adding it. The $6m option ignores the carrying amount of the investment.

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