Content area
Full Text
The previous version of AC 132, Consolidated Financial Statements and Accounting for Investments in Subsidiaries, contained an exemption from the consolidation of a subsidiary where control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future. Such investments were accounted for in terms of AC 133, Financial Instruments: Recognition and Measurement, in the consolidated financial statements.
With the release of IFRS 5 (AC 142), Woncurrent Assets Held for Sale and Discontinued Operations, during 2004, this exemption from consolidation has been eliminated; and the revised IAS 27 (AC 132). Consolidated and Separate Financial Statements, now requires all subsidiaries to be consolidated. This article addresses the implication of this change for the accounting in the consolidated financial statements for a subsidiary acquired exclusively with a view to resale.
Classification as 'held for sale'
An asset or a disposal group is normally classified as 'held for sale' if its carrying amount will be recovered principally through a sale transaction and if the following criteria are met (IFRS 5 (AC 142) para 06-08):
* The asset or disposal group is available for immediate sale in its present condition;
* The appropriate level of management is committed to a plan to sell the asset or disposal group;
* An active programme to locate a buyer has been initiated;
* The asset or disposal group is actively marketed for sale at a price that is reasonable in relation to its current fair value;
* The sale is expected to qualify for recognition as a completed sale within one year from the date of classification of the asset or disposal group as held for sale; and
* Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
IFRS 5 (AC 142). however, determines that when an entity acquires a non-current asset or disposal group exclusively with a view to its subsequent disposal, the non-current asset or disposal group must be classified as 'held for sale' on the acquisition date only if:
* The one-year requirement is met; and
* It is highly probable that the other criteria qualifying the asset or...