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11.5 Disposal of a Subsidiary and Loss of Control

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ACCA Applied Skills — Financial Reporting FR

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1 Chapter 1: The Conceptual Framework & Qualitative Characteristics

1.1 Purpose of Financial Reporting & The Conceptual Framework 1.2 Qualitative Characteristics, Materiality & Prudence 1.3 Elements of Financial Statements, Recognition & Measurement Bases

2 Chapter 2: Regulatory Framework, Standard Setting & IFRS 18 Foundations

2.1 The Regulatory Framework, IASB Standard Setting & Due Process 2.2 Presentation and Disclosure Foundations & IFRS 18 2.3 Concepts and Principles of Groups & Consolidated Accounts 2.4 When Consolidation Is Required, Exemptions and Uniform Group Policies 2.5 The ISSB and IFRS S1 Sustainability-Related Financial Disclosures

3 Chapter 3: Tangible Non-Current Assets

3.1 IAS 16 Property, Plant and Equipment — Recognition and Cost 3.2 IAS 16 Revaluation Model & Asset Disposals 3.3 IAS 23 Borrowing Costs & IAS 20 Government Grants 3.4 IAS 40 Investment Property

4 Chapter 4: Intangibles, Impairment & Inventories

4.1 IAS 38 Intangible Assets — Research & Development 4.2 IAS 36 Impairment of Assets — Principles and Testing 4.3 Cash-Generating Units (CGUs) and Goodwill Impairment 4.4 IAS 2 Inventories & IAS 41 Biological Assets

5 Chapter 5: Leases and Revenue from Contracts

5.1 IFRS 16 Leases — Lessee Accounting 5.2 IFRS 16 Lessor Accounting & Sale and Leaseback 5.3 IFRS 15 Revenue from Contracts with Customers — The 5-Step Model 5.4 IFRS 15 Contract Costs and Specific Revenue Transactions

6 Chapter 6: Financial Instruments, Provisions, Tax & Currency

6.1 IFRS 9 & IAS 32 Financial Instruments 6.2 IAS 37 Provisions, Contingent Liabilities & IAS 10 Events After Reporting Period 6.3 IAS 12 Income Taxes — Current and Deferred Tax 6.4 IAS 21 Foreign Currency Transactions & IAS 33 Earnings Per Share 6.5 Factoring of Receivables and Derecognition of Financial Assets

7 Chapter 7: Financial Analysis & Ratio Performance

7.1 Profitability and Efficiency Ratios 7.2 Liquidity and Working Capital Management Ratios 7.3 Gearing, Solvency and Investor Ratios 7.4 Analytical Interpretation, Context & Reporting Limitations 7.5 EPS as a Performance Indicator: Trends and Limitations 7.6 Interpreting Not-for-Profit and Public Sector Financial Statements

8 Chapter 8: Cash Flows and Group Analysis

8.1 IAS 7 Statement of Cash Flows — Operating Activities 8.2 IAS 7 Cash Flows — Investing and Financing Activities 8.3 Analysing Cash Flows & Group Financial Statements

9 Chapter 9: Preparation of Single-Entity Financial Statements

9.1 Single-Entity Statement of Profit or Loss and OCI under IFRS 18 9.2 Statement of Financial Position and Statement of Changes in Equity 9.3 Comprehensive Single-Entity Trial Balance Adjustments 9.4 IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations 9.5 IAS 8 Accounting Policies, Estimates and Errors, and Disclosing Material Items

10 Chapter 10: Consolidated Statement of Financial Position

10.1 Group Concepts, Control & The Consolidation Framework 10.2 Working 2: Net Assets of the Subsidiary & Fair Value Adjustments 10.3 Working 3 Goodwill & Working 4 Non-Controlling Interest 10.4 Working 5 Group Retained Earnings & Intra-Group Adjustments

11 Chapter 11: Consolidated Profit or Loss and Associates

11.1 Consolidated Statement of Profit or Loss & OCI 11.2 Mid-Year Acquisitions and Non-Controlling Interest Allocation 11.3 IAS 28 Investments in Associates & The Equity Method 11.4 Consolidated Statement of Changes in Equity & Group Disclosures 11.5 Disposal of a Subsidiary and Loss of Control

12 Chapter 12: ACCA FR CBE Exam Strategy and Technique

12.1 CBE Tools, Spreadsheets and Word Processing Response Technique 12.2 Section A & B Objective Test Case Strategy 12.3 Section C Constructed Response Mastery

11.5 Disposal of a Subsidiary and Loss of Control

Key Takeaways Explain This Topic AI

The FR syllabus restricts subsidiary disposals to the sale of the parent's entire investment, so control is always lost and no part-disposal accounting is required.

The consolidated statement of profit or loss includes the subsidiary's results only up to the date control is lost, time-apportioned where the disposal falls mid-year.

The group gain or loss on disposal is proceeds plus the non-controlling interest at the disposal date, less the subsidiary's net assets and the unimpaired goodwill at that date.

The parent's own separate financial statements report a different gain, being proceeds less the cost of the investment, because they never recognised goodwill or post-acquisition profits.

Where the subsidiary is a separate major line of business or geographical area, its result and the disposal gain are presented together as a single discontinued operations figure.

Last updated: September 2026

11.5 Disposal of a Subsidiary and Loss of Control

Scope note: The FR study guide requires you to explain and illustrate the effect of the disposal of a parent's investment in a subsidiary in the parent's individual financial statements and/or those of the group, including as a discontinued operation — and it adds an important restriction: disposals are restricted to the disposal of the parent's entire investment in the subsidiary . You will never be asked in FR to account for a part-disposal that leaves a retained associate or a retained financial asset. Control is always lost in full. That restriction removes most of the complexity and leaves one working to master.

1. Two Sets of Financial Statements, Two Different Gains

The single most common error in this topic is answering the wrong question. A disposal produces two entirely different gains , computed on different bases, and the requirement will tell you which one it wants. +-------------------------------------+ +-------------------------------------+

  • | THE PARENT'S OWN (SEPARATE) | | THE CONSOLIDATED FINANCIAL |
  • | FINANCIAL STATEMENTS | | STATEMENTS |
  • +-------------------------------------+ +-------------------------------------+
  • | The investment was carried at COST | | The group recognised the |
  • | (or at fair value, or under the | | subsidiary's NET ASSETS, its |
  • | equity method) under IAS 27. | | GOODWILL and, each year, its share |
  • | | | of POST-ACQUISITION PROFITS. |
  • | | | |
  • | Gain = PROCEEDS | | Gain = PROCEEDS |
  • | - COST OF INVESTMENT | | + NCI at disposal date |
  • | | | - net assets at that date |
  • | | | - goodwill at that date |
  • +-------------------------------------+ +-------------------------------------+

The group gain is almost always the smaller of the two, because the group has already recognised its share of the subsidiary's post-acquisition profits in consolidated retained earnings, year by year. The parent's separate statements recognised none of that, so the whole accumulated value appears at once as a disposal gain.

2. How Long Is the Subsidiary Consolidated For?

Up to the date control is lost, and not a day longer. Where the disposal occurs part-way through the year:

The consolidated statement of profit or loss includes the subsidiary's income and expenses time-apportioned to the disposal date, on the usual assumption that they accrue evenly unless the scenario says otherwise;

The non-controlling interest's share of profit is calculated on that same apportioned figure;

The consolidated statement of financial position at the year end includes none of the subsidiary's assets or liabilities — they have gone. What appears instead is the cash proceeds received;

Intra-group balances and transactions are eliminated only up to the disposal date .

Warning

The statement of financial position and the statement of profit or loss disagree on purpose. Candidates who consolidate nine months of Selby's revenue and then also include Selby's year-end receivables have mixed the two rules. After disposal the subsidiary is simply gone from the group balance sheet.

  • 3. The Group Gain or Loss Working GROUP PROFIT OR LOSS ON DISPOSAL OF A SUBSIDIARY $
  • --------------------------------------------------------------------------
  • Fair value of consideration received X
  • Add: Non-controlling interest at the date of disposal X
  • Less: Net assets of the subsidiary at the date of disposal (X)
  • Less: Goodwill at the date of disposal (cost less cumulative
  • impairment recognised to that date) (X)
  • --------------------------------------------------------------------------
  • Group profit / (loss) on disposal X
  • ===========================================================================
  • Why each line is there
  • Line Reason
  • Consideration received What the group actually obtained in exchange for giving up control

Add NCI at the disposal date The group is derecognising the subsidiary's whole net assets, not just its own share. The NCI balance represents the portion of those net assets that never belonged to the group, so it is added back to avoid charging the group with a loss of value it never owned

Less net assets at the disposal date The assets and liabilities that leave the group. Remember to include the unamortised effect of any fair value adjustments recognised at acquisition — those form part of the group's carrying amount of the subsidiary's net assets even though they never appear in the subsidiary's own books

Less goodwill at the disposal date Goodwill disappears with the subsidiary. Use the carrying amount , that is, goodwill at acquisition less any impairment already recognised

Computing the NCI figure at the disposal date

The NCI balance is the usual Working 4, rolled forward to the disposal date: NCI at acquisition (at fair value, or at the proportionate share

  • of net assets at acquisition) X
  • Add: NCI% x post-acquisition movement in the subsidiary's net
  • assets, up to the disposal date X
  • Less: NCI share of goodwill impairment (only where NCI was measured
  • at FAIR VALUE -- under the proportionate method the NCI bears none) (X)
  • --------------------------------------------------------------------------
  • NCI at the date of disposal X
  • 4. Presentation: When It Is a Discontinued Operation

If the subsidiary represents a separate major line of business or geographical area of operations , or was acquired exclusively with a view to resale , its disposal meets the IFRS 5 definition of a discontinued operation (see section 9.4). In that case:

The subsidiary's post-tax result to the disposal date and the post-tax group gain or loss on disposal are combined into the single discontinued operations figure that IFRS 18 places in its own profit or loss category;

An analysis of that single amount is given on the face of the statement or in the notes;

The prior period comparative statement of profit or loss is re-presented so that the same operation is shown as discontinued in both years.

If the subsidiary is not a separate major line of business — the sale of one of eight similar trading subsidiaries in the same market, for example — there is no discontinued operation. The results are consolidated to the disposal date within continuing operations and the disposal gain is presented within the appropriate category, with separate disclosure if it is material.

  • 5. Worked Example
  • Scenario — Marchmont plc, year ended 31 December 20X6

Marchmont acquired 80% of Selby Co on 1 January 20X1 for $3,400,000 cash, when the fair value of Selby's identifiable net assets was $3,600,000 . Marchmont elected to measure the non-controlling interest at its fair value of $850,000 at the acquisition date.

Cumulative impairment of the goodwill recognised up to the date of disposal was $150,000 .

Selby's net assets at 1 January 20X6 were $5,200,000 . Selby's profit after tax for the year to 30 September 20X6 was $720,000 , accruing evenly, and Selby paid no dividends.

On 30 September 20X6 Marchmont sold its entire 80% holding for $6,200,000 cash. Selby was Marchmont's only healthcare business, the rest of the group being an engineering operation, and therefore represents a separate major line of business.

  • Step 1: Goodwill at acquisition and at the disposal date Consideration transferred 3,400,000
  • Add: NCI at fair value at acquisition 850,000
  • --------
  • 4,250,000
  • Less: Fair value of identifiable net assets at acquisition (3,600,000)
  • --------
  • Goodwill at acquisition 650,000
  • Less: Cumulative impairment to the disposal date (150,000)
  • --------
  • Goodwill at the date of disposal 500,000
  • Step 2: Selby's net assets at the disposal date Net assets at 1 January 20X6 5,200,000
  • Add: Profit for the 9 months to 30 September 20X6 720,000
  • --------
  • Net assets at 30 September 20X6 5,920,000
  • Step 3: Non-controlling interest at the disposal date NCI at acquisition (fair value) 850,000
  • Add: NCI 20% x post-acquisition movement in net assets
  • 20% x ($5,920,000 - $3,600,000) = 20% x $2,320,000 464,000
  • Less: NCI 20% share of goodwill impairment (NCI measured at
  • fair value, so it bears its share) 20% x $150,000 (30,000)
  • --------
  • NCI at 30 September 20X6 1,284,000
  • Step 4: The group profit on disposal Fair value of consideration received 6,200,000
  • Add: NCI at the date of disposal 1,284,000
  • --------
  • 7,484,000
  • Less: Net assets of Selby at the date of disposal (5,920,000)
  • Less: Goodwill at the date of disposal (500,000)
  • --------
  • GROUP PROFIT ON DISPOSAL 1,064,000
  • =========
  • Step 5: The gain in Marchmont's own separate financial statements Proceeds 6,200,000
  • Less: Cost of the investment in Selby (3,400,000)
  • --------
  • PROFIT ON DISPOSAL IN THE PARENT'S OWN STATEMENTS 2,800,000
  • =========
  • Step 6: Reconciling the two figures

The difference of $1,736,000 is not an error; it is the value the group had already recognised. Parent's separate gain 2,800,000

  • Less: Group's share of Selby's post-acquisition retained profits,
  • already recognised in consolidated reserves
  • 80% x ($5,920,000 - $3,600,000) = 80% x $2,320,000 (1,856,000)
  • Add: Group share of goodwill impairment already charged to
  • consolidated profit or loss 80% x $150,000 120,000
  • --------
  • Group gain 1,064,000
  • Step 7: Presentation in the consolidated statement of profit or loss

Selby is a separate major line of business, so it is a discontinued operation . MARCHMONT PLC -- CONSOLIDATED STATEMENT OF PROFIT OR LOSS (extract), year ended 31 Dec 20X6

CONTINUING OPERATIONS

... the engineering business only ...

Profit for the year from continuing operations X

  • DISCONTINUED OPERATIONS
  • Profit for the year from discontinued operations 1,784,000

PROFIT FOR THE YEAR X

Analysis of the discontinued operations figure (note):

  • Profit after tax of Selby for the 9 months to 30 September 20X6 720,000
  • Group profit on disposal of Selby 1,064,000
  • --------
  • 1,784,000

Profit attributable to:

  • Owners of the parent (continuing X) + (1,784,000 - 144,000) = X + 1,640,000
  • Non-controlling interest 20% x $720,000 for the 9 months to disposal = 144,000

The consolidated statement of financial position at 31 December 20X6 contains none of Selby's assets or liabilities and no goodwill in respect of Selby. The $6,200,000 of cash proceeds is included in cash and cash equivalents, and the receipt is presented as an investing cash inflow in the consolidated statement of cash flows.

6. Common Exam Traps

Warning

Trap 1: Omitting the NCI from the working. Forgetting to add the NCI at the disposal date understates the group gain by the NCI balance, which in this example would have cost $1,284,000 — the single largest error available in the question.

Warning

Trap 2: Using goodwill at acquisition instead of the carrying amount. Goodwill leaves the group at its impaired carrying amount. Using the acquisition figure double-counts impairment already charged.

Warning

Trap 3: Consolidating the subsidiary for the full year. Income and expenses are included only to the date control is lost. Twelve months of revenue against a mid-year disposal contradicts the gain calculation in the same answer.

Warning

Trap 4: Reporting the parent's separate gain as the group gain. Read the requirement. "In the consolidated financial statements" and "in the parent's own financial statements" ask for two different numbers, and a well-set question asks for both so that it can test whether you understand why they differ.

Tip

Lay the working out vertically every time, even under time pressure. Proceeds, add NCI, less net assets, less goodwill. Four lines, four marks, and the method marks are available even if one of the component figures is wrong under the own-figure rule.