Welcome to Query Of The Week
Welcome to this week’s Query Of The Week. Each week our technical team respond to a huge number of client queries and in this segment, we share with you the most common questions that keep coming up time and time again.
In this week’s Query Of The Week, John Murphy discusses how to handle accounting in a case where you are seeking to dispose of a subsidiary.
Practical Consolidation Process Under FRS 102 (FRS 102 Bootcamp 2)
If this Query Of The Week was of interest to you, you will also be interested in our Practical Consolidation Process Under FRS 102 (FRS 102 Bootcamp 2) webinar which is scheduled for Wednesday, 15 May 2019.
|Date||Wednesday, 15 May|
|CPD Allocation||1 Hour|
|Fee||€38 (or 1 CPD Club point)|
|Presenter||John Murphy – OmniPro|
Query Of The Week – Video Transcript
(Please note that this is a direct unedited transcript of the spoken word as recorded on the video)
Hello and welcome to this week’s query of the week. My name is John Murphy, and I work in Practice Support and the tax and legal section of OmniPro.
This week I’m looking at consolidation. We were working with a client who had disposed of a subsidiary during the year, and we were browsing their clients under consolidation. The query they had was how they were to account for this disposal under FRS 102?
To answer that question, you must look at Section Nine of FRS 102, which deals with consolidation generally. Effectively what the rule says, is that you know you have to consolidate the figures from the start of the period to the date of disposal. Therefore, after the date of disposal, it’s not your company. So, you know it means effectively, in many cases that subsidiary is probably doing a full years’ trial balance.
This means that you will have to go back and let’s say it was December year end for that subsidiary, and you dispose of it in September, you’d have to get the results from January through to September, effectively just to put into your consolidated financial statement. All the transactions within the group, involving that company, between January 1 and September 30, will need to be eliminated. All inter-company sales and inter-company purchases as of that day are all eliminated on consolidation.
Likewise, if there are dividends from the subsidiary to the parent, they will be eliminated under consolidation, to have a nil effect. Over the years, since you acquired that subsidiary, you will have accumulated profit and loss reserves, into the group accounts. And you’ll have assets on your consolidated balance sheets from last year for that subsidiary. Therefore, you’ll have to determine what your assets were on the balance sheet at the date of disposal so that you can put a profit and loss in disposal, in the consolidated financial statements. So that’s important that you do that exercise as well. That’s the accounting for, and the results that you need to show, in your financial statements. You will also need to deal with the disclosures in FRS 102 about related parties.
The question asked about this is what disposals are included in our accounts if we had it for half or three quarters of the year in this exact example—if we didn’t have it for the last quarter. As I mentioned previously, the first nine months of the year will be eliminated, because you’ll have eliminated them in your consolidation. This leads us now to the transactions. After April 30 you won’t want to show the transactions between the two companies because it’s outside the group. Unless it’s a joint venture, or an associate at that point in time, in which case there would be disclosures for the period from September 30 to December 31 assumed at your consolidated financial statements.
As a note to my comments on Financial Statements; if other subsidiaries in the group have had transactions with this first subsidiary within the period January 1 – September 30. There will be no need for disclosure because they are a hundred percent all within the group. From September 30 to December 31 it depends on the type of transaction, or if it is no longer a subsidiary at all as then, there is no more disclosure to be made.
Obviously, in that case, and your comparative view, you’ll potentially have amounts due from group companies in your creditors note, or debtors note. But you might have balances owed from this company that is owed to the disposed subsidiary. They would have come within the amounts due in your creditors or debtors note and would appear as ordinary trade debtors/ trade creditors, as applicable about it.
So, there are some of the disclosures required if that type of transaction occurs.