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Disposal of subsidiary from one co to another

What is treatment of a subsidiary in group accounts "disposed of" from one co to another co?

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We undertook a restructuring, creating two separate groups from one, and transferred one operating subsidiary across to the new group, at nil gain/loss. Both companies are owned by exactly the same group of shareholders, in exactly the same proportions, and with the same values of OSC. What would the Group accounts need to show in the "disposing" group's consolidated accounts?

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By WhichTyler
19th Dec 2018 12:45

Not enough information to give a definitive answer I'm afraid. In groups activities like this, you should take paid professional advice (from the people who advised you on the restructure?)

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By ASF
19th Dec 2018 13:04

We did, on tax and legal, and our auditors were aware of the transaction, but now, as we try to close the audit for the year, they have come up with this late "surprise". The perverse thing is that everything is owned today, as it was "yesterday", just having moved from an old group into a newly-established one, so it is perplexing to understand how a need to book a loss has arisen (especially with no discuss of a gain in the other group). The "loss" is, of course being driven by their assertion that the NAVs disposed of exceed the consideration paid. Thank you anyway.

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By WhichTyler
19th Dec 2018 13:46

ASF wrote:

The "loss" is, of course being driven by their assertion that the NAVs disposed of exceed the consideration paid. Thank you anyway.

So how do you think the disposal should be accounted for?

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By ASF
19th Dec 2018 14:21

Yes, that is indeed an excellent question, and if I had the answer, I would feel much happier than I do, as I type this! My concern is that (ignoring GAAP for one moment), this is a wholly "internal" transaction. We set up two new holding co's and transferred one of our trading subsidiaries from one holding co to the other. Nothing at all different, and yet now we are receiving "asymmetric" feedback as to how this should be handled, at the consolidated level, that does not seem to align with the commercial substance of the transaction, which is that nothing of value has left the shareholders (merely passing from the left hand to the right hand), and yet the auditors seem not to be able to recognise the strangeness of what they are suggesting. I have a meeting with them soon, and was just trying to get a feel for what others might think. We shall see what that yields up!

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By johngroganjga
19th Dec 2018 16:08

Yes but you are preparing the accounts of the companies not of the shareholders who own them.

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By WhichTyler
19th Dec 2018 16:08

ASF wrote:

ignoring GAAP for one moment

This may be the root of your problem; the auditors aren't ignoring that pesky little thing...

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By ASF
19th Dec 2018 16:40

Input is appreciated. Understand auditors will not be ignoring GAAP, and that we prepare the accounts for the companies and not the shareholders. However, if we are being asked to report a loss on disposal as the NAV being removed from the consolidation is greater than the consideration received, then surely in the "acquiring" entity, the NAV being received is greater than the consideration paid, and we should record ...........?

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By WhichTyler
19th Dec 2018 17:29

yes but fixed assets (inc. investments) are initially valued at cost, aren't they ? See para 11.13 of FRS102

you may then find that a fair value revaluation is appropriate, but that will be treated separately and accounted for in a reval reserve, which may have other consequences, idk...

But I wonder why I am telling the owner of big complicated (wealthy?) business this, when they could ask their accountant or FD to explain it...

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By ASF
20th Dec 2018 12:19

You assume complicated = big, and that is not the case here. Also, this is a very unusual transaction for a (relatively) small private group of companies to undertake. I met out auditors today to go through their proposed treatment, and before that, I just wanted to sound out my peers (who I reasonably assumed might have more experience of such accounting for group restructurings that i certainly have) to be able to get a sense for how I feel the conversation ought to go. I have always found Accounting Web's forums to be highly informative, and helping those accountants among us, who are in business (not practitioners) to gain a deeper understanding of any relevant topics discussed in here. I greatly value what I have read, as "another perspective", and thank everyone for their thoughts. In no way, would I ever look to this forum as a cheap alternative to paid advice, rather as a Peer Group network, where people freely share their knowledge and thoughts with others, who ask, out of recognition that none of us know it all! Please contrast this with some posts I have seen where people wish to use it as a free advertising vehicle for their products or services. Again, many thanks.

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