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ACCA Strategic Professional · Strategic Business Reporting (International) · Foreign transactions and entities

Parent Alto has a foreign subsidiary Zeta, which is 80% owned. At the date Alto sells a 30% interest, reducing its holding to 50% and losing control (the remaining interest is a joint venture accounted for under the equity method), the cumulative translation reserve attributable to owners of Alto is 400,000 credit and the amount attributable to non-controlling interest (NCI) is 100,000 credit. How should this be treated under IAS 21?

Alto reclassifies the 400,000 attributable to its owners to profit or loss, because it loses control of the subsidiary. The 100,000 relating to non-controlling interest is derecognised with the NCI and is not recycled to profit or loss. Proportionate recycling applies only where control is retained.

  1. AReclassify the full 500,000 to profit or loss, with the NCI part simply moved out of equity
  2. BReclassify 400,000 to profit or loss and derecognise the 100,000 NCI share as part of derecognising NCI, with no profit or loss recycling for itCorrect
  3. CReclassify nothing, since a foreign operation is still held
  4. DReclassify 400,000 × 30/80 = 150,000 only, as a partial disposal

Explanation

When control is lost, the whole cumulative difference attributable to the owners is reclassified to profit or loss (400,000), irrespective of the retained interest, since the subsidiary becomes a joint venture. The NCI's share (100,000) is derecognised but not reclassified to profit or loss. The proportionate 150,000 approach applies only when a partial disposal does not result in loss of control, and then only to NCI attribution.

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