What is the step-by-step process for derecognizing a subsidiary from consolidated statements?

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AcadiFi · Accepted Answer

Derecognition occurs when a parent loses control of a subsidiary -- whether through sale, dilution, or contractual change. The process under IFRS 10 and ASC 810 follows specific steps:

**Step 1: Determine the date control is lost**
Control is lost when the parent can no longer direct the relevant activities of the subsidiary.

**Step 2: Derecognize all subsidiary assets and liabilities**
Remove 100% of the subsidiary's assets and liabilities from the consolidated balance sheet at their carrying amounts (including goodwill).

**Step 3: Derecognize the NCI**
Remove the non-controlling interest related to the former subsidiary.

**Step 4: Recognize the fair value of consideration received**
Cash, shares, or other assets received from the buyer.

**Step 5: Recognize any retained interest at fair value**
If the parent retains a non-controlling stake, measure it at fair value on the date control is lost.

**Step 6: Reclassify OCI items**
Reclassify accumulated OCI items (foreign currency translation, hedging reserves) to profit or loss, as required.

**Step 7: Calculate gain or loss**

**Example -- Meridian Corp sells 60% of its 80% stake in Lantern Systems (fictional):**
- Carrying value of Lantern's net assets: $120M
- NCI carrying value (20%): $24M
- Goodwill: $15M
- Accumulated CTA in OCI: $3M
- Sale proceeds for 60%: $90M
- Fair value of retained 20% interest: $30M

Gain/Loss = (Proceeds + FV retained interest + NCI removed) - (Net assets + Goodwill) - OCI reclassification

= ($90M + $30M + $24M) - ($120M + $15M) - $3M = **$6M gain**

The retained 20% is now accounted for as an equity method investment (if significant influence exists) or a financial asset, measured at the $30M fair value going forward.

What is the step-by-step process for derecognizing a subsidiary from consolidated statements?

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