STEP ACQUISITION [SOFP & SOCI] – Class notes

SITUATIONS
1. Equity investment to S
2. A/JV to S
3. Further investment in S

Subsequent purchase of shares under each of the above situation is discussed in detail as follows:

1) Equity investment to Subsidiary

1st investment was accounted for as an investment (as per IFRS 9). Control is obtained on 2 nd investment,
therefore, acquisition date is the date of 2nd investment. Treatment after 2nd investment is discussed separately
for SOFP and SOCI.

STATEMENT OF FINANCIAL POSITION

(i) Full consolidation of assets and liabilities will be made at year end.
(ii) Goodwill working:
Fair value of 1st investment at acquisition date X
Additional investment X
Value of NCI X
Less: Net assets of S at acquisition date (X)
Goodwill at acquisition X
Less: Impairment loss (X)
Goodwill carrying amount X
(iii) “Other reserves” working will be made as studied earlier.
(iv) “Retained earnings” working will be made as studied earlier except that a gain/(loss) on derecognition of
earlier investment is recognized in P’s column calculated as follows:

Fair value of 1st investment at acquisition date X

Less: Carrying amount of 1st investment (X)
Gain / (loss) X
Note – If entity has classified earlier investment at “fair value through OCI” then this gain/(loss) is
recognized in Other reserves. However, it may still be included in RE, giving a note that cumulative gain/loss
recognized can be transferred to RE on de-recognition as per IFRS 9.

(v) NCI working will be made as studied earlier.

STATEMENT OF COMPREHENSIVE INCOME

SOCI is better understood if we assume 2nd investment made during the current year (i.e. control achieved
during the current year).

(i) Time proportionate consolidation of incomes and expenses will be made for the year.
(ii) Profit on de-recognition of earlier investment is recognized in “Other income” (if classified as FV through
P&L) or “Other comprehensive income (if classified as FV through OCI).
(iii) NCI working is made on time proportionate basis as studied earlier in basic consolidation.

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 STEP ACQUISITION [SOFP & SOCI] – Class notes

2) A/JV to Subsidiary
1st investment was accounted for as per equity method. Control is obtained on 2 nd investment, therefore,
acquisition date is the date of 2nd investment. Treatment after 2nd investment is discussed separately for SOFP
and SOCI.

STATEMENT OF FINANCIAL POSITION

(i) Full consolidation of assets and liabilities will be made at year end.

(ii) Goodwill working:

Fair value of 1st investment at acquisition date X
Additional investment X
Value of NCI X
Less: Net assets of S at acquisition date (X)
Goodwill at acquisition X
Less: Impairment loss (X)
Goodwill carrying amount X
(iii) In “Other reserves” working, S other reserves will be split into:
1) Other reserves between 1st investment and 2nd investment [it will be considered as share from
Associate/JV and old% will be applied].
2) Other reserves after 2nd investment [it will be considered as share from S and new% will be applied]

(iv) In “Retained earnings” working, S RE will be split into:

1) RE between 1st investment and 2nd investment [it will be considered as share from Associate/JV and
old% will be applied].
2) RE after 2nd investment [it will be considered as share from S and new% will be applied]

Moreover a gain/(loss) on derecognition of earlier investment is recognized in P’s column calculated as follows:

Fair value of 1st investment at acquisition date X

Less: Cost of 1st investment X
Share in Other reserves [as per (iii) (1) above] X
Share in RE [as per (iv) (1) above] X
(X)
Gain/(loss) X
(v) NCI working will be made as studied earlier in basic consolidation.

STATEMENT OF COMPREHENSIVE INCOME

SOCI is better understood if we assume 2nd investment made during the current year (i.e. control obtained
during the current year).

(i) Time proportionate consolidation of incomes and expenses will be made for the year.
(ii) “Share of profit/OCI from associate/JV” shall be calculated on S’s PAT/OCI between year start and 2 nd
investment date.
(iii) Profit on de-recognition of earlier investment is recognized in “Other income”.
(iv) NCI working is made on time proportionate basis as studied earlier in basic consolidation.

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 STEP ACQUISITION [SOFP & SOCI] – Class notes

2) Further investment in Subsidiary

Control was obtained in 1st investment, therefore, acquisition date is the date of 1st investment. 2nd investment
is just considered as a transaction within equity. Treatment after 2 nd investment is discussed separately for
SOFP and SOCI.

STATEMENT OF FINANCIAL POSITION

(i) Full consolidation of assets and liabilities will be made at year end.

(ii) Goodwill is calculated at the date of 1st investment and it is not recalculated on 2nd investment.

(iii) In “Other reserves” working, S other reserves will be split into:

1) Other reserves between 1st investment and 2nd investment [old% will be applied to this portion].
2) Other reserves after 2nd investment [new% will be applied to this portion.]

(iv) In “Retained earnings” working, S RE will be split into:

1) RE between 1st investment and 2nd investment [old% will be applied to this portion].
2) RE after 2nd investment [new% will be applied to this portion]

(v) An adjustment in equity is calculated as follows:

Decrease in NCI:
- In Value of NCI at acquisition [Value at acquisition x decrease%/old NCI%] X
- In Other reserves [(iii) (1) above x decrease%] X
- In RE [(iv) (1) above x decrease%] X X
nd
Consideration paid for 2 investment (X)
Adjustment in equity [+/-] X
This adjustment shall be made in P column in “Other reserves” or “Retained earnings”. [IFRS 10 has just
mentioned the word “equity” and not specified the account. However, some books use “other reserves”
while some use “Retained earnings”].

(vi) NCI working will be made as follows:

Value at acquisition [Value at acquisition x new NCI%/old NCI%] X

Other reserves [Total post after 1st investment x new NCI%] X
Retained earnings [Total post after 1st investment x new NCI%] X
X

STATEMENT OF COMPREHENSIVE INCOME

SOCI is better understood if we assume subsequent acquisition during the current year.

(i) Full consolidation of incomes and expenses will be made for the year.
(ii) NCI working is made on time proportionate basis in following two components:

S’s PAT [from year start to 2nd investment date x old NCI %] X
S’s PAT [from 2nd investment date to year end x new NCI %] X
X

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