Partial disposal of an associate retaining significant influence

If an entity’s ownership interest in an associate is reduced, but the investment continues to be an associate, the following steps should be performed: De-recognise the carrying value of the associate proportionate to the percentage reduced. Recognise the fair value of the consideration received. Recognise the resulting gain or loss in profit or loss. Reclassify to profit or loss a proportionate amount of the gain or loss that had previously been recognised in other comprehensive income if that gain or loss would be required to be reclassified to profit or loss on the disposal of the related assets or liabilities (for example, reclassify currency translation reserve to profit or loss, and reclassify the surplus of revaluation of property, plant and equipment to retained earnings). Measure the remaining investment in accordance with IAS 28. This is illustrated in the example below. Entity A has a 40% stake in entity B. Entity B is an associate of entity A. During the period, entity A sells a quarter of its stake (10%) in entity B for consideration of C80 million.

From the date of the partial disposal, entity A will continue to recognise its remaining 30% interest in entity B as an associate. Entity B’s net asset carrying value at the date of the partial disposal is C300 million. Goodwill was calculated at C30 million at the date of acquiring the associate and there has been no impairment recognised. At the date of the partial disposal, the associate’s carrying values in entity A’s consolidated financial statements are as follows:

C’m Investment in associate (including goodwill) (40% × C300m + C30m) 150 Cumulative share of associate’s other comprehensive income (for example, a foreign currency translation reserve) 20 The accounting entry for the partial disposal is as follows: C’m C’m Dr Cr Dr Cash 80.0 Cr Investment in associate (25% × C150m) 37.5 Cr Gain on partial disposal 42.5 Dr Other comprehensive income (reclassification adjustment) 5.0 Cr Profit or loss (presented as part of the gain on partial disposal) 5.0 The remaining investment in the associate will continue to be accounted for using the equity method for the remaining 30% interest.