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

Parent Rhea (functional currency dollars) holds 90% of subsidiary Tarn, whose functional currency is the euro. Rhea sells 10% of Tarn's shares, reducing its holding to 80%, and retains control. The cumulative translation reserve on Tarn is 600,000 credit in total, of which the NCI share before sale was 10% (60,000) and the owners' share was 540,000. Which treatment applies to this partial disposal in the consolidated financial statements?

Where Rhea sells part of its holding in Tarn but keeps control, the proportionate share of the cumulative translation reserve is reattributed to non-controlling interest within equity. Nothing is recycled to profit or loss, because the change in ownership is an equity transaction, not a loss of control.

  1. AReclassify 10/90 of the owners' reserve, 60,000, to profit or loss
  2. BReattribute the proportionate share of the cumulative translation difference to NCI within equity, with no reclassification to profit or lossCorrect
  3. CReclassify the full 540,000 to profit or loss
  4. DReclassify nothing and leave attribution between owners and NCI unchanged

Explanation

For a partial disposal without loss of control, IAS 21 requires the proportionate share of the cumulative exchange differences to be reattributed to NCI within equity. No gain or loss is recognised in profit or loss, because it is a transaction with owners. Recycling 60,000 or the full amount would apply only to loss of control or a similar disposal.

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