August 2022
SALE OF A STAKE IN A SUBSIDIARY BY A PARENT WITHOUT LOSS OF CONTROL
By Dolphy D’souza, Chartered Accountant
Reading Time 6 mins
This article deals with the accounting of the sale of a stake in a subsidiary by the parent, in the Consolidated Financial Statements (CFS) of the parent.
CASE - Accounting of the Sale of a Stake in a Subsidiary by a Parent Without Loss Of Control
FACTS - A Ltd. (‘Parent’) acquired a 100% controlling stake in B Ltd. (‘Subsidiary’) for a cash consideration of Rs. 12,500 crores. On the date of acquisition, B Ltd.’s identifiable net assets at fair value were Rs. 10,000 crores. Goodwill of Rs. 2,500 crores was recognised in the CFS of the parent.
- In a subsequent year, A Ltd. sells a 25% interest in B Ltd. to outside investors / non-controlling interests (NCI) for a cash consideration of Rs. 3,500 crores.
- A Ltd. still maintains a 75% controlling interest in B Ltd., i.e. A Ltd. continues to control B Ltd. even after the sale of a 25% stake in B Ltd.
- For simplicity, it is assumed that there has been no change in the net assets of the subsidiary since the acquisition till the date of sale of 25% stake by A Ltd.
- There are no call/put options with NCI and/or parent.
ISSUEHow should the parent’s sale of a stake in the subsidiary without a loss of control be accounted for in the CFS of A Ltd.?
RESPONSEAccounting Standard References
Ind AS 110, Consolidated Financial Statement<
