A Ltd. has a wholly owned subsidiary B Ltd. A Ltd. sells subsidiary B Ltd. to C Ltd. a listed entity, for shares in C Ltd. and ends up owning 75% of…

Effective disposal of stake in B Ltd. [100%- (75% of 100%)] = 25% which will be considered as non-controlling interest in B Ltd. With regard to A Ltd.'s consolidated financial statements, it is necessary to calculate the 'gain or loss' (on the disposal of 25% of B Ltd.) that is recognised in equity and the goodwill arising (on the acquisition of C Ltd.). When control is retained, it should be noted that goodwill attributed to the portion sold remains unchanged and is allocated to the non-controlling interest. In addition, if control is retained, the gain or loss should be recognised in equity. Gain or loss on disposal of 25% of B Ltd. ₹ Calculation of non-controlling interest B Ltd. in A's consolidated financial statement: Book value of assets and liabilities given up plus attributable goodwill [(₹ 10,00,000 +6,00,000) x 25%] 4,00,000 Less: Fair value of business received in consideration (W.N.1) (4,37,500) Gain on disposal recognized in equity 37,500 The net assets compared should include an appropriate portion of any cumulative exchange differences and any reserve on FVOCI debt investments previously recognised in other comprehensive income and accumulated in equity. Goodwill on acquisition of 75% of C Ltd. ₹ Fair value of business given in consideration (₹ 17,50,000 x 25%) 4,37,500 Non-controlling interest C Ltd. measured at the proportionate share of the acquired net-asset (₹ 5,00,000 x 25%) 1,25,000 5,62,500 Less: Fair value of assets and liabilities acquired (5,00,000) Goodwill 62,500 The consolidated entry recognised is: ₹ ₹ Fair value of net identifiable assets -C Ltd. Dr. 5,00,000 Goodwill - C Ltd. Dr. 62,500 To Non-controlling interest B Ltd. (16,00,000 x 25%) 4,00,000 To Non-controlling interest – C Ltd. (500,000 x 25%) 1,25,000 To Equity 37,500 Consolidation of A Ltd., B Ltd. and C Ltd. after the transaction Consolidation of A Ltd., B Ltd. and C Ltd. after the transaction A Ltd. B Ltd. C Ltd. Elim Consolidated Goodwill (W.Ν.2) - - - 662,500 662,500 Investment in subsidiary (W.N.3) 1,750,000 - 1,750,000 (3,500,000) - Net assets 10,000,000 1,000,000 380,000 120,000 11,500,000 11,750,000 1,000,000 2,130,000 (2,717,500) 12,162,500 Equity share capital 2,000,000 500,000 800,000 (1,300,000) 2,000,000 Additional paid in capital - - 1,150,000 (1,150,000) - Retained earnings (W.N.4) 9,750,000 500,000 180,000 (792,500) 9,637,500 Non-controlling interest - - - 525,000 525,000 Total equity 11,750,000 1,000,000 2,130,000 (2,717,500) 12,162,500 Note: C Ltd.'s net assets are adjusted to fair value for the purpose of the consolidation as A Ltd. has acquired 75% of C Ltd. and gained control of C Ltd. Working Notes: 1. A Ltd. receives consideration (that is, shares in C Ltd.) with a fair value of 17,50,000. However, the amount included in the calculation is the amount attributable to the interest in B Ltd. that has been disposed of, that is 25% of 17,50,000 = 4,37,500. The fair value of the part of the subsidiary B that is effectively disposed of is derived from the price paid by C Ltd. for the whole of B Ltd. which is 17,50,000. 2. The goodwill balance of 6,62,500 represents the previous balance of the goodwill of 6,00,000 arising on the acquisition of B Ltd., plus the goodwill of 62,500 arising on the acquisition of C Ltd. The original goodwill arising on the acquisition of B Ltd. is retained and a portion (25%) is allocated to the non-controlling interest. 3. On consolidation the net assets of C Ltd. are increased from 3,80,000 to their fair value of 5,00,000. 4. Computation of consolidated retained earnings ₹ Retained earnings of A Ltd. (excluding the investment revaluation gain of 2,50,000, which is reversed) 95,00,000 Add: Post-acquisition profits of B Ltd. 1,00,000 Add: Gain on disposal (recognised directly in equity) 37,500 96,37,500 5. Computation of non-controlling interest ₹ 25% of C Ltd.'s fair value of net assets (₹ 5,00,000 x 25%) 1,25,000 Add: 25% of B Ltd.'s net assets (including goodwill) (₹ 16,00,000 x 25%) 4,00,000 5,25,000