as result of a change in the fair value of the assets to be distributed; [IFRIC 17.16] and
• if, after the end of a reporting period but before the financial statements are
authorised for issue, an entity declares a dividend to distribute a non-cash asset, it
discloses: [IFRIC 17.17]
• the nature of the asset to be distributed;
• the carrying amount of the asset to be distributed as of the end of the
reporting period;
• the fair value of the asset to be distributed as of the end of the reporting
period, if it is different from its carrying amount; and
• information about the method(s) used to determine that fair value required by
paragraphs 93(b), (d), (g) and (i) and 99 of IFRS 13 (see Chapter 14 at 20.1 and 20.3).
Chapter 4 at 3 discusses the presentation requirements of IFRS 5 where the demerger meets
the definition of a discontinued operation. Chapter 4 at 2.2.4 discusses the presentation of
non-current assets and disposal groups held for sale. The same requirements apply to non-
current assets and disposal groups held for distribution. [IFRS 5.5A].
4
CHANGES IN OWNERSHIP INTEREST WITHOUT A LOSS
OF CONTROL
An increase or decrease in a parent’s ownership interest that does not result in a loss of
control of a subsidiary is accounted for as an equity transaction, i.e. a transaction with
owners in their capacity as owners. [IFRS 10.23]. A parent’s ownership interest may
change without a loss of control, e.g. when a parent buys shares from or sells shares to
a non-controlling interest, a subsidiary redeems shares held by a non-controlling
interest, or when a subsidiary issues new shares to a non-controlling interest.
The carrying amounts of the controlling and non-controlling interests are adjusted to
reflect the changes in their relative interests in the subsidiary. IFRS 10 states that ‘the
entity shall recognise directly in equity any difference between the amount by which
the non-controlling interests are adjusted and the fair value of the consideration paid
or received, and attribute it to the owners of the parent.’ [IFRS 10.24, B96]. In other words,
no changes to a subsidiary’s assets (including goodwill) and liabilities are recognised in
a transaction in which a parent increases or decreases its ownership interest in a
subsidiary but retains control. [IFRS 10.BCZ173]. Increases or decreases in the ownership
interest in a subsidiary do not result in the recognition of a gain or loss.
496 Chapter
7
4.1
Reattribution of other comprehensive income
If there has been a partial disposal of a subsidiary without a loss of control and the disposal
includes a foreign operation, the proportionate share of the cumulative amount of
exchange differences recognised in other comprehensive income is reattributed to the
non-controlling interests in that foreign operation. [IAS 21.48C]. If the entity subsequently
disposes of the remainder of its interest in the subsidiary, the exchange differences
reattributed to the non-controlling interests are derecognised (i.e. along with the rest of
the non-controlling interest balance) but are not separately reclassified to profit or loss
(see Chapter 15 at 6.6.1.A). [IAS 21.48B]. In other words, on loss of control, only the exchange
differences attributable to the controlling interest immediately before loss of control are
reclassified to profit or loss. The accounting is illustrated in Example 7.13 below.
Although not explicitly addressed in IFRS 10 or IAS 21, the IASB has clarified that IFRS
requires the reattribution of other amounts recognised in other comprehensive income.
The May 2009 IASB Update noted that in the Board’s view ‘there is no need to clarify
the following points, because the relevant requirements are clear: ...
• When a change in ownership in a subsidiary occurs but does not result in the loss
of control, the parent must reattribute other comprehensive income between the
owners of the parent and the non-controlling interest.’15
Example 7.11 below illustrates accounting for reattribution of other comprehensive income.
Example 7.11: Reattribution of other comprehensive income upon a decrease in
ownership interest that does not result in a loss of control
A parent has a wholly owned subsidiary that has net assets of ¥4,000,000, and total other comprehensive
income accumulated within equity of ¥1,000,000 related to exchange differences on a foreign operation. No
goodwill has been recognised in respect of this subsidiary. The parent sells a 10% interest in the subsidiary
for ¥500,000 and does not lose control. The carrying amount of the non-controlling interest is ¥400,000
which includes ¥100,000 (i.e. 10%) of the total other comprehensive income of ¥1,000,000 related to
exchange differences on a foreign operation reattributed to the non-controlling interest (as shown below).
The parent accounts for the transaction through equity as follows:
¥’000
¥’000
DR CR
Cash 500
Parent’s share of other comprehensive income
(¥1,000,000 × 10%)
100
Parent’s other reserves
200
Non-controlling interest’s share of other comprehensive income
(¥1,000,000 × 10%)
100
Non-controlling interest (excluding share of other comprehensive income)
(¥4,000,000 × 10% – (¥1,000,000 × 10%))
300
The IASB’s views also clarify that the reattribution approach is also required on an
increase in ownership interest without gaining control. Again, neither IFRS 10 nor
IAS 21 addresses this explicitly. Example 7.12 below illustrates the reattribution
approach upon an increase in ownership interest.
Consolidation procedures and non-controlling interests 497
Example 7.12: Reattribution of other comprehensive income upon an increase in
ownership interest
A parent holds an 80% interest in a subsidiary that has net assets of ¥4,000,000. No goodwill has been
recognised in respect of this subsidiary. The carrying amount of the 20% non-controlling interest is ¥800,000
which includes ¥200,000 that represents the non-controlling interest’s share of total other comprehensive
income of ¥1,000,000 related to exchange differences on a foreign operation. The parent acquires an
additional 10% interest in the subsidiary for ¥500,000, which increases its total interest to 90%. The carrying
amount of the non-controlling interest is now ¥400,000 which includes ¥100,000 (i.e. 10%) of the total other
comprehensive income of ¥1,000,000 related to exchange differences on a foreign operation, after
reattributing ¥100,000 to the parent (as shown below).
The parent accounts for the transaction through equity as follows:
¥’000
¥’000
DR CR
Non-controlling interest’s share of other comprehensive income
(¥1,000,000 × 10%)
100
Non-controlling interest (excluding share of other comprehensive income)
(¥800,000 × 10% / 20% – (¥1,000,000 × 10%))
300
Parent’s other reserves
200
Parent’s share of other comprehensive income
(¥1,000,000 × 10%)
100
Cash
500
Example 7.13 below illustrates the reclassification of reattributed exchange differences
upon subsequent loss of control. This shows that the reattribution of the exchange
differences arising on the change in the parent’s ownership of the subsidiary (as
illustrated in Examples 7.11 and 7.12 above) affects the gain recognised on loss of control
of the subsidiary.
Example 7.13: Reclassification of reattributed exchange differences upon
subsequent loss of control
Assume the same facts as in Examples 7.11 or 7.12 above. Following those transactions, the parent now holds
a 90% interest in a subsidiary that has net assets of ¥4,000,000. No goodwill has been recognised in respect
of this subsidiary. The carrying amount of the 10% non-controlling interest is ¥400,000 which includes
¥100,000 of the total other comprehensive income of ¥1,000,000 related to exchange differences on a foreign
operation, as reattributed to the non-controlling interest. The parent subsequently sells its 90% interest for
¥4,700,000. For the purposes of illustration, there have been no subsequent changes in net assets nor other
comprehensive income up to the date of sale.
The parent accounts for the transaction as follows:
¥’000
¥’000
DR CR
Cash proceeds from sale
4,700
Net assets of subsidiary derecognised
4,000
Non-controlling interest derecognised
400
Parent’s share of other comprehensive income reclassified
(¥1,000,000 × 90%) 900
Gain recognised on disposal of subsidiary attributable to parent
2,000
498 Chapter
7
4.2
Goodwill attributable to non-controlling interests
It is not clear under IFRS 10 what happens to the non-controlling interests’ share of
goodwill, when accounting for transactions with non-controlling interests.
However, we believe that the parent should reallocate a proportion of the goodwill
between the controlling and non-controlling interests when their relative ownership
interests change. Otherwise, the loss recognised upon loss of control (see 3.2 above) or
goodwill impairment would not reflect the ownership interest applicable to that non-
controlling interest. Chapter 20 at 9 discusses how an entity tests goodwill for
impairment, where there is a non-controlling interest. The issues arising include:
• calculation of the ‘gross up’ of the carrying amount of goodwill (for the purposes of
the impairment test) because non-controlling interest is measured at its proportionate
share of net identifiable assets and hence its share of goodwill is not recognised;
• the allocation of impairment losses between the parent and non-controlling
interest; and
• reallocation of goodwill between the non-controlling interest and controlling
interest after a change in a parent’s ownership interest in a subsidiary that does not
result in loss of control.
Under IFRS 3, the proportion of goodwill that is attributable to the non-controlling
interest is not necessarily equal to the ownership percentage. This might happen for one
of two reasons. The most common is when the parent recognised the non-controlling
interest at its proportionate share of the acquiree’s identifiable net assets and therefore
does not recognise any goodwill for the non-controlling interest (see Chapter 9 at 5.1
and 8.2). This situation might also occur because goodwill has been recognised for both
the parent and the non-controlling interest but the parent’s goodwill reflects a control
premium that was paid upon acquisition (see Chapter 9 at 8.1).
Example 7.14 below illustrates one approach to reallocating goodwill where there is a
change in ownership of the subsidiary with no loss of control (for a situation where the
non-controlling interest is recognised initially at its fair value).
Example 7.14: Reallocation of goodwill to non-controlling interests
A parent pays €920 million to acquire an 80% interest in a subsidiary that owns net assets with a fair value
of €1,000 million. The fair value of the non-controlling interest at the acquisition date is €220 million.
Share of net
Share of
assets
goodwill Total
€m
€m
€m
Parent 800
120
920
Non-controlling interest 200
20
220
1,000
140
1,140
Decrease in ownership percentage
A year after the acquisition, the parent sells a 20% interest in the subsidiary to a third party for €265 million.
There has been no change in the net assets of the subsidiary since acquisition.
The parent’s interest decreases to 60% and its share of net assets decreases to €600 million. Correspondingly,
the share of net assets attributable to the non-controlling interest increases from €200 million to €400 million.
Consolidation procedures and non-controlling interests 499
The parent company sold a 20% interest in its subsidiary. Therefore, one approach for reallocating goodwill
is to allocate €30 million (20% / 80% × €120 million) of the parent’s goodwill to the non-controlling interest.
After the transaction, the parent’s share of goodwill is €90 million (€120 million – €30 million).
In its consolidated financial statements, the parent accounts for this transaction as follows:
€m €m
DR CR
Cash 265
Non-controlling interests ((€400m – €200m) + €30m)
230
Equity of the parent
35
Increase in ownership percentage
Taking the initial fact pattern as a starting point, the parent acquires an additional 10% interest in the
subsidiary for €115 million. There has been no change in the net assets of the subsidiary since acquisition.
The parent’s interest increases to 90% and its share of net assets increases to €900 million. Correspondingly,
the share of net assets attributable to the non-controlling interest is reduced from €200 million to
€100 million. The parent acquired half of the non-controlling interest. Using the proportionate allocation
approach discussed above, the parent allocates €10 million (10% / 20% × €20 million) of the non-controlling
interest’s goodwill to the parent.
In its consolidated financial statements, the parent accounts for this transaction as follows:
€m €m
DR CR
Non-controlling interest ((€200m – €100m) + €10m)
110
Equity of the parent 5
Cash
115
In Example 7.14 above, the non-controlling interest was recognised and measured at its
fair value at the acquisition date. If the non-controlling interest had been measured based
on its proportionate share of net assets, the proportionate allocation approach described
in the example would have resulted in the same accounting for the transaction where the
parent’s ownership interest had decreased. However, where the parent increased its
ownership interest, as the carrying amount of the non-controlling interest did not include
any amount for goodwill, the adju
stment to the non-controlling interest would only have
been €100 million resulting in a debit to the parent’s equity of €15 million.
The proportionate allocation approach described in Example 7.14 above is just one
method that may result in relevant and reliable information. However, other
approaches may also be appropriate depending on the circumstances. We consider that
an entity is not precluded from attributing goodwill on a basis other than ownership
percentages if to do so is reasonable, e.g. because the non-controlling interest is
measured on a proportionate share (rather than fair value) and because of the existence
of a control premium. In such circumstances, an allocation approach which takes into
account the acquirer’s control premium will result in a goodwill balance that most
closely resembles the balance that would have been recorded had the non-controlling
interest been recorded at fair value. An entity may also be able to allocate impairment
losses on a basis that recognises the disproportionate sharing of the controlling and the
non-controlling interest in the goodwill book value. This is discussed further in
Chapter 20 at 9.
500 Chapter
7
4.3
Non-cash acquisition of non-controlling interests
One issue considered by the Interpretations Committee is the accounting for the
purchase of a non-controlling interest by the controlling shareholder when the
consideration includes non-cash items, such as an item of property, plant and
equipment. More specifically, the submitter asked the Interpretations Committee to
clarify whether the difference between the fair value of the consideration given and the
carrying amount of such consideration should be recognised in equity or in profit or
loss. The submitter asserted that, according to the requirements of the then IAS 27 –
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 99