CHAPTER 16 SALE OF SHARES IN SUB OR

ASSOCIATE
 Sale of shares
Existing interest / influence Minus Remaining interest / influence
Subsidiary (>50%) -% No shareholding
Subsidiary (>50%) -% IFRS 9 investment (<20%)
Subsidiary (>50%) -% Associate (20-50%)
Subsidiary (>50%) -% Subsidiary (>50%)
Associate (20-50%) -% Associate (20-50%)
Associate (20-50%) -% IFRS 9 investment (<20%)

Note: the % are used as a general rule of

thumb here – factors other than ownership
interest may lead to control or significant
influence
 Sale of shares – loss of control/SI?
Existing Minus Remaining Loss of control/
interest / influence interest / influence significant influence?
Subsidiary (>50%) -% No shareholding
 P/L
Subsidiary (>50%) -% IFRS 9 investment (<20%)  P/L
Subsidiary (>50%) -% Associate (20-50%)  P/L
Subsidiary (>50%) -% Subsidiary (>50%)  SCE
Associate (20-50%) -% Associate (20-50%)  P/L
Associate (20-50%) -% IFRS 9 investment (<20%)
 P/L
 Profit/loss on sale of shares
From the Parent’s From the Group’s point of
point of view view
Proceeds on sale of shares R90 000 R90 000 R90 000
Cost of shares sold (R65 000)
(ie. the at acquisition equity
acquired + goodwill/bargain gain) (R65 000)
Since acquisition increase (up to (R18 300)
date of sale) in reserves sold
CA of net assets for which Deduct equity and (R78 300)
ownership has been lost goodwill
Goodwill sold (R5 000)
Profit/loss on sale of shares Deduct net assets
R25and
000 R6 700 R6 700
goodwill
Since acquisition increase in reserves
(already included in the Group Equity) are
now realised!!!
IFRS 10 Loss of control
B98 - If a parent loses control of a sub, it shall:
(a) Derecognise
• the assets (incl g/will) and liabilities at their CA

• NCI

(b) Recognise
• FV of consideration received

• Any investment retained in the former sub, at its fair value

(c) Reclassify to p/l or trf directly to RE subsidiary amounts

recognised in OCI
(d) Recognise any resulting gain/loss in p/l
 Sale of shares – loss of control/SI?
Existing Mius Remaining Loss of control/
interest / influence interest / influence significant influence?

Subsidiary - % No  No longer
consolidate
(>50%) shareholding
Subsidiary (>50%) -% IFRS 9 investment (<20%)

Subsidiary (>50%) -% Associate (20-50%) 
Subsidiary (>50%) -% Subsidiary (>50%) 
Associate (20-50%) -% Associate (20-50%)

Associate (20-50%) -% IFRS 9 investment (<20%)

Example 16.1 Sale of entire
holding of shares (NCI at % NA)

Consolidat
Acquire Incl profit Record ed SOFP
60% Consolidate of sub to profit on 31/12/04
R65 000 31/12/03 date of sale sale of sub does not
31/12/02 30/9/04 30/9/04 include
Sub at all

We are no longer consolidating the sub into the group – no longer

adding H+S trial balances together
Therefore, no @ acquisition journal entry
And, we need to include everything we want in the consolidated
AFS via a PFJE!!!
Example 16.1 Sale of entire holding of
shares – calc group profit – 1 (equity+GW)
Proceeds 90 000
Cost of shares sold (65 000)
Profit on sale (in H’s books) 25 000
Since acqn reserves sold – RE (15 300)
- ARR ( 3 000)
Consolidated profit 6 700
Example 16.1 Sale of entire holding of
shares – calc group profit – 2 (%NA+GW)
Proceeds on disposal 90 000
% of net identifiable assets
disposed of (60% X 130 500) (78 300)
Goodwill attrib to H sold (5 000)
Consolidated profit 6 700
Remember: If NCI measured at
% of NA – then goodwill is all attrib to H
FV – then part of goodwill is attrib to NCI
Example 16.1 Sale of entire holding of
shares – calc group profit – 3 (NA+GW-NCI)
Proceeds on disposal 90 000
Net identifiable assets
no longer consolidated (130 500)
Goodwill (attrib to H+NCI)sold (5 000)
NCI 52 200
Consolidated profit 6 700
Remember: If NCI measured at
% of NA – then goodwill is all attrib to H
FV – then part of goodwill is attrib to NCI
Example 16.1 Sale of entire holding of
shares - PFJE
Include since acquisition increase in reserves up to BOY into RE / OR opening
balances
Cr ARR 3 000
Cr RE 3 600
Include 9/12 months of subs profit in consolidated SOCI
 Cr Operating profit 30 000
 Dr Taxation 10 500
Allocate portion of subs profit to NCI
 Dr NCI share of profit7 800
Reduce profit on sale of shares by portion of since acquisition reserves sold
 Dr Profit on sale of subsidiary 18 300
Example 16.1 Sale of entire holding of
shares - PFJE
Transfer other reserves to retained earnings as
they have now been realised:
 Dr Transfer from ARR 3 000
 Cr Transfer to RE 3 000
Example 16.2 Sale of entire holding of
shares (NCI at FV; with I/Co trans)
See excel spreadsheet
Note:
• NCI at FV = goodwill arises from parent and NCI

• Inter-company profit on inventory

 Sale of shares
Existing interest / influence Minus Remaining interest / influence
Subsidiary (>50%) -% No shareholding

Subsidiary -% IFRS 9 investment

(>50%) (<20%)
Subsidiary (>50%) -% Associate (20-50%)
Subsidiary (>50%) -% Subsidiary (>50%)
Associate (20-50%) -% Associate (20-50%)
Associate (20-50%) -% IFRS 9 investment (<20%)

Note: the % are used as a general rule of

thumb here – factors other than ownership
interest may lead to control or significant
influence
Example 16.3 Sale of portion of shares –
remaining invtmt is a financial asset

IFRS 10 Loss of control

B98 - If a parent loses control of a sub, it shall:
Recognise any investment retained in the former sub
at its Fair Value
After, classify ito IFRS 9 and carry at FV through P/L or OCI.
CA of FA = %CA of NA + %Goodwill
+ Gain/loss on remeasuring to FV
Example 16.3 Sale of portion of shares –
remaining invtmt is a financial asset
Similar to example 16.2 except:
NCI @ % of NA (not FV) and
“H Ltd sold 96% of its 75% shareholding in S Ltd for
R940 000 on 31 Dec 09. The FV of the remaining
investment was R38 500 on 31 Dec 09.”
“H Ltd sold a 72% interest in S Ltd for R940 000 . . .”
If they hadn’t told us the cost of the original investment we
could have worked it out from the remaining investment in S
Ltd, at cost of R26 000. How?
Example 16.3 Sale of portion of shares –
remaining invtmt is a financial asset
Alternative way to account for unearned profit in inventory sold inter-
company:
Don’t reverse the full amount of unearned profit in the current year AoE (as
in example 16.2 and 16.3)
R8 000 COS (R4 000) Tax
Rather, do the normal adjustment for unearned profit in the current year
AoE
R4 000 COS (R2 000) Tax
The remainder of the profit will be realised through the profit on sale of the
investment
R4 000 X 50% X 75% = R1 500
 Sale of shares – loss of control/SI?
Existing Minus Remaining Loss of control/
interest / influence interest / influence significant influence?
Subsidiary (>50%) -% No shareholding

Subsidiary (>50%) -% IFRS 9 investment (<20%) 
Subsidiary - % Associate (20- 
(>50%) 50%)
Subsidiary (>50%) -% Subsidiary (>50%) 
Associate (20-50%) -% Associate (20-50%)

Associate (20-50%) -% IFRS 9 investment (<20%)

IFRS 10 Loss of control
B98 - If a parent loses control of a sub, it shall:
(a) Derecognise
• the assets (incl g/will) and liabilities at their CA

• NCI

(b) Recognise
• FV of consideration received

• Any investment retained in the former sub, at its fair value

(c) Reclassify to p/l or trf directly to RE subsidiary amounts

recognised in OCI
(d) Recognise any resulting gain/loss in p/l
 Equity
Sale of %
Consolidat account
s/holding
e IFRS 10 IAS 28
Dispose of
IAS 27 “Cost” of
A+L
All A+L investment
Show P/L
= FV
Example 16.4 Subsidiary becomes an
associate
o Watch the wording:
o Acquired 60% of the shares in S Ltd
o Sold 35% of the shares in S Ltd
o Now own 25% of the shares in S Ltd
o (sold 58.33% of its shareholding in S Ltd)


o NOT
o Sold 35% of its shareholding in S Ltd
o Which is 21% of the shares in S Ltd
o Now own 39%.
Example 16.4 Subsidiary becomes an
associate
o If they hadn’t told us the proceeds on sale:
o Profit on sale of S Ltd: 14 000
o Proceeds – ?
o Cost (66 000 – 27 500) 38 500
 Sale of shares – loss of control/SI?
Existing Minus Remaining Loss of control/
interest / influence interest / influence significant influence?
Subsidiary (>50%) -% No shareholding

Subsidiary (>50%) -% IFRS 9 investment (<20%) 
Subsidiary (>50%) -% Associate (20-50%) 

Subsidiary - % Subsidiary 
(>50%) (>50%)
Associate (20-50%) -% Associate (20-50%)

Associate (20-50%) -% IFRS 9 investment (<20%)

IFRS 10 Change in NCI%
B98 – When the proportion of the equity held by the
NCI changes, an entity shall adjust the CA of the
controlling and non-controlling interests to reflect the
changes in their relative interests in the subsidiary.
The entity shall recognise directly in equity (SCE)
any difference between the amount by which the NCI
are adjusted and the FV of the consideration paid or
received, and attribute it to the owners of the parent.
(Proceeds–NCI = gain or loss (SCE))
Example 16.7
 Acquired 60% on 31/12/02 for R65 000.
 Sold 10% of its holding for R10 000.
 (i.e. Sold 6% of S Ltd’s shares – now owns 54%)
 NCI at %NA
 Who did H sell the shares too? NCI
10% of (its investment and since acqn incr
 What did H sell? in reserves) R6500+1530+300=R8 330
 What profit did H make (own books)? R10000-6500
=3500
 What profit did H make (group)? “Profit” R10 000-
(6500+1530+300)8330
= 1670
Example 16.7 NCI at %NA
S Ltd
NA 130 500
Gwill 5 000

NCI 40% H Ltd 60%

NA 52 200 NA 78 300
Gwill 0 Gwill 5 000
Example 16.7 NCI at %NA
S Ltd
NA 130 500
Gwill 5 000

NCI 46% H Ltd 54%

NA 60 030 NA 70 470
Gwill 500 Gwill 4 500
Example 16.8
 Same as 16.7 but NCI is at Fair value
 Does it make a difference compared to 16.7 where
NCI was at % NA?
Example 16.8 NCI at FV
S Ltd
NA 130 500
Gwill 6 000

NCI 40% H Ltd 60%

NA 52 200 NA 78 300
Gwill 1 000 Gwill 5 000
Example 16.8 NCI at FV
S Ltd
NA 130 500
Gwill 6 000

NCI 46% H Ltd 54%

NA 60 030 NA 70 470
Gwill 1 500 Gwill 4 500
 Sale of shares – loss of control/SI?
Existing Minus Remaining Loss of control/
interest / influence interest / influence significant influence?
Subsidiary (>50%) -% No shareholding

Subsidiary (>50%) - % No major

IFRS 9 issues
investment (<20%) 
Subsidiary (>50%)

-%
It is not a transaction between owners
Associate (20-50%) 
THEREFORE profit/loss on sale goes to P/L
Subsidiary (>50%) -% Subsidiary (>50%) 

Associate - % Associate 
(20-50%) (20-50%)
Associate (20-50%) -% IFRS 9 investment (<20%)

Example 16.9 Sale of shares
in associate and it remains an associate
 Jnls in H Ltd’s own books?

 PFJEs to correctly account for A Ltd in the

consolidated financial statements?

Ignoring deferred tax

on the profit on sale of
shares
Example 16.9 Sale of shares
in associate and it remains an associate
 Jnls in H Ltd’s own books?
 Dr Inv in A 880
 Cr Bank 880
 Dr Bank 950
 Cr Inv in A 440
 Cr Profit on sale (p/l) 510
 Dr Bank 80
 Cr Divs recd80
Example 16.9 Sale of shares
in associate and it remains an associate
 PFJEs to correctly account for A Ltd in the consolidated financial statements?
 Dr Inv in A 760
 Cr RE440
 Cr OR 320
 Dr Inv in A 160 + 80
 Cr Share of profit of assoc 160 + 80
 Dr Profit on sale (p/l) 160 + 300
 Cr Inv in A 160 + 300
 Dr OR 160
 Cr Re 160
 Dr Divs recd 80
 Cr Inv in A 80
 Sale of shares – loss of control/SI?
Existing Minus Remaining Loss of control/
interest / influence interest / influence significant influence?
Subsidiary (>50%) -% No shareholding

Similar to loss of control of
Subsidiary (>50%)
subsidiary
-% IFRS 9 investment (<20%) 
Subsidiary (>50%) -% Associate (20-50%) 
Remeasure the investment to FV –
Subsidiary (>50%)
include in P/L - % Subsidiary (>50%) 

Include profit/loss
Associate (20-50%) - % onAssociate
sale in(20-50%)
P/L 

Associate - % IFRS 9 
(20-50%) investment
(<20%)
Example 16.10 Sale of shares in
assoc, becomes a FA (IFRS 9)
PFJEs to correctly account for A Ltd in the consolidated financial statements?
PFInv in A
Dr 760
Cr RE 440
Cr OR 320
Dr Inv in A 160
Cr Share of profit of assoc 160
Dr Profit on sale (p/l) 240 + 450
Cr Inv in A 240 + 450
Dr OR 240
Cr Re 240
Example 16.10 Sale of shares in
assoc, becomes a FA (IFRS 9)
PFJEs to correctly account for A Ltd in the consolidated financial statements?
PFDivs recd
Dr 40
Cr Inv in A 40
Dr Inv in A 10
Cr Profit on sale of shares (p/l) 10
Dr Investment in A Ltd 30
Cr Gain on financial asset (OCI) 30

Although this journal should

actually have been done in H
Ltd’s own books
IFRS 10 Loss of control
B98 - If a parent loses control of a sub, it shall:
(a) Derecognise
• the assets (incl g/will) and liabilities at their CA

• NCI

(b) Recognise
• FV of consideration received

• Any investment retained in the former sub, at its fair value

(c) Reclassify to p/l or trf directly to RE subsidiary amounts

recognised in OCI
(d) Recognise any resulting gain/loss in p/l
IFRS 10 Loss of control
B99 – If a parent loses control of a subsidiary, the parent shall account for
all amounts previously recognised in OCI in relation to that subsidiary on
the same basis as would be required if the parent had directly disposed of
the related assets or liabilities.
Therefore, if a gain/loss previously recognised in OCI would be
reclassified to P/L on the disposal of the related assets or liabilities, the
parent shall reclassify the gain/loss from equity to P/L (as a reclassification
adjustment) when it loses control of the subsidiary.
If a revaluation surplus previously recognised in OCI would be transferred
directly to RE on the disposal of the asset, the parent shall transfer the
revaluation surplus directly to RE when it loses control of the subsidiary.
Items in OCI when sub or assoc
is sold (loss of control/sig infl)
Other comprehensive income
Items that will not be reclassified to profit or loss:
Revaluation surplus (CHECK CO POLICY ON TRF’ING TO RE)
FV gain on equity instruments
Defined benefit plan
Share of OCI of associate
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Cash flow hedges
Example 16.11 Loss of control of sub
 60% - 35% = 25%
 Two types of OCI –FV of FA thru OCI / revaluation
land
 Sub revalued land in prior year – realised portion of RR
transferred to RE
 Sub accounts for its FA at FV through OCI
 Parent accounts for its investment in S Ltd at cost
(ito IAS 27 or IAS 28)