Chapter 9: Disposal of investments

The carrying amount of an investment carried at cost, or accounted for under the equity method, is de-recognised when it is sold or otherwise disposed of. The difference between the fair value of any consideration paid on disposal and the carrying amount of the investment would be recorded in the income statement as a gain or loss on disposal.

The de-recognition principles in IFRS 9 are applied when an investment carried at fair value is disposed of.

The principles that apply to disposals also apply to partial disposals. Therefore, where an entity reduces its stake in an undertaking (whether the investment becomes an associate, an investment accounted for under IFRS 9 or remains a subsidiary), any profit or loss should be calculated as the difference between the following: sale proceeds; and change in the carrying amount of the investment.

How should a partial disposal be accounted for where an investment is measured at cost? Where a disposal results in the reduction of an interest in an investment held at cost which remains a subsidiary or an associate, the change in the carrying amount of the investment will be proportionate to the part disposed of. Where there is a step down from subsidiary to associate, the measurement of the carrying amount of the investment in the associate depends on whether the existing accounting policy for investments in associates is at cost, at fair value in accordance with IFRS 9 or the equity method. For example, if the entity has a policy of recording associates at cost, there is no clear guidance in IAS 27 on what cost represents. In our view, a similar proportionate approach can be applied.

Partial disposal of an investment in a subsidiary accounted for at cost – example Entity A owns 100 per cent of the ordinary share capital of its subsidiary, Entity B. In its separate financial statements, Entity A accounts for its investment in Entity B at a cost of CU100 as permitted by IAS 27. Entity A sells 90 per cent of the shares in Entity B for cash of CU180. After this transaction, it has neither control, joint control nor significant influence over Entity B. Therefore, its remaining 10 per cent equity interest is accounted for under IFRS 9 and measured on initial recognition (and subsequently) at fair value. At the date of the transaction, Entity A’s remaining interest in Entity B has a fair value of CU20. At the date of the partial disposal of Entity B, Entity A should recognise a gain in profit or loss of CU100, calculated as: CU Consideration received 180 Fair value of retained interest 20 200 Less: Investment in subsidiary at cost (100) Gain on partial disposal of Entity B 100 This gain (including any element reflecting the difference between the cost and fair value of the retained interest) meets the definition of income in the Conceptual Framework for Financial Reporting and, applying IAS 1, is recognised in profit or loss. This is the case regardless of whether Entity A presents subsequent changes in fair value of its retained interest in profit or loss or other comprehensive income. This conclusion was confirmed by the IFRS Interpretations Committee in the January 2019 IFRIC Update.