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Investment in subsidiary valuation, FRS 105

Investment in subsidiary, FRS 105 Section 9.8(a), equity method allowed?

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Looking at FRS 105, 9.8(a) (Financial Instruments, Subsequent measurement, investments in subsidiaries), should I keep investment in subsidiary (small group, no consolidated accounts, both FRS 105) valued at the amount of the initial share capital paid in, ignoring any profit of the subsidiary at the year end?

E.g. if a parent founded a subsidiary for £1, and the subsidiary then achieved £100 in net profit for the year (ending on the same date as parent's year), I would expect the parent's investment in subsidiary to increase for that £100 in profit. However, reading FRS 105  9.8(a) (as 7.2 is referring to 9) it looks like I need to keep the parent's investment in subsidiary valued at £1? I must be missing something?

And another question - on the CT600, where do I enter the £100 increase in investment in subsidiary as a deduction from taxable profit(for the parent, assuming the £100 should appear on the parent's books).


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19th Mar 2019 14:14

Hi Saso

Would be good to engage an accountant. They can explain this to you.

They will also be able to advise how you are massively over disclosing the information that it is necessary to put on the public record for all to see.

They can also advise the mistakes you are making on your Confirmation Statement.

Edit: Just noticed a year ago you stated "I am looking for a CIMA Member-in-Practice Continuity Agreement partner."

Thanks (1)
19th Mar 2019 15:01

Yes you keep it at cost.

Your second question does not arise, because you are wrong in your assumption.

Thanks (1)
to johngroganjga
19th Mar 2019 15:25

Thank you, John,

In a way, I am glad that your interpretation is the same, as it means that I am not completely mad at best or clueless at worst. On the other hand, I am thinking whether I should then adopt FRS 102 for the parent. As otherwise, there will once be a year with a massive revaluation, when any of the businesses grow beyond FRS 105. Also, the accounts of the parent will look very strange until then (way off any "reality"/fair value).

And the second question (CT600) then re-emerges.

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to sasopuksic
19th Mar 2019 15:47

There are many differences between FRS105 and FRS102, but I think they are as one in the matter of accounting for investments in subsidiaries.

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to johngroganjga
19th Mar 2019 16:57

Thanks, John, you are right.

Just looking into FRS 102.

Based on 9.24, 9.26, 9.26A it's either cost or fair value, for the individual (non-consolidated) statements, not net assets (the latter would be my preferred option, as it's not completely off like the cost is, and as it also doesn't require an actual valuation like the fair value does).

2A.6 could eventually lead to an investment in subsidiary that is measured at fair value, to actually be measured at its book value, though. However, that would probably require some evidence that a reasonable fair value estimate is unobtainable.

Many thanks for the input, I think I am stuck stuck with the FRS 105, and the measurement at cost.

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