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

Omega holds 20% of Sigma, an associate. It acquires a further 35% for cash, obtaining control. Under IFRS Accounting Standards, how should Omega measure its previously held 20% interest in the consolidated financial statements at the acquisition date?

Omega remeasures the previously held 20% to fair value at the date control is obtained, recognises the resulting gain or loss in profit or loss, and includes that fair value in the goodwill calculation, as a step acquisition is treated as a disposal and a new acquisition.

  1. ARemeasure it to fair value at the acquisition date, with the gain or loss recognised in profit or loss, and include it in the consideration for goodwillCorrect
  2. BKeep it at its equity-method carrying amount and add it to the cash paid in calculating goodwill
  3. CRemeasure it to fair value with the gain recognised in other comprehensive income
  4. DMeasure it at original cost and exclude it from the goodwill calculation

Explanation

A step acquisition from associate to subsidiary is treated as a disposal of the associate and acquisition of the subsidiary under IFRS 3. The previously held interest is remeasured to fair value, with the gain or loss in profit or loss, and is included in the goodwill calculation. Carrying amount or cost is not used.

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