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

Kappa plc held 50% of a joint venture, Lambda, equity accounted. Kappa now buys the other 50%, obtaining control. Which statement about the consolidated accounts is correct under IFRS?

Kappa remeasures its previously held joint venture interest to fair value, takes the gain or loss to profit or loss, and then consolidates Lambda as a subsidiary. Gaining control from joint control is a step acquisition under IFRS 3.

  1. AThe previously held interest is remeasured to fair value, with any gain or loss in profit or loss, and Lambda is then consolidated as a subsidiaryCorrect
  2. BThe joint venture carrying amount is carried forward unchanged and goodwill is calculated on the 50% purchase only
  3. CThe remeasurement gain is recognised in other comprehensive income without reclassification
  4. DThe change is treated as an equity transaction since Kappa already had joint control

Explanation

IFRS 3 applies to a business combination achieved in stages when a joint venture becomes a subsidiary, so the previously held interest is remeasured to fair value through profit or loss. Goodwill then reflects consideration, fair value of the old stake and any non-controlling interest, less net assets. The equity-transaction treatment is for changes in a subsidiary only.

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