Business Combinations and Group Financial Reporting

Introduction and context

Business combinations reshape reporting entities. When one entity obtains control of another, users need information about the assets acquired, liabilities assumed, goodwill created, performance of the resulting group and interests held by owners outside the parent. IFRS 3 Business Combinations, IFRS 10 Consolidated Financial Statements, IAS 28 Investments in Associates and Joint Ventures, and IFRS 11 Joint Arrangements provide the principal requirements.

These standards are economically connected. IFRS 3 determines how an acquisition is initially measured; IFRS 10 determines whether the acquiree is consolidated thereafter; IAS 28 applies the equity method to associates and certain joint ventures; and IFRS 11 classifies joint arrangements according to the parties’ rights and obligations. The reporting challenge is not merely mechanical. It requires judgments about control, fair value, identifiable intangibles, contingent consideration, governance rights, and the substance of contractual arrangements.

Learning objectives

By the end of this chapter, the reader should be able to:

1. Explain the acquisition method and identify the acquisition date.
2. Measure identifiable assets, liabilities, goodwill and non-controlling interests.
3. Prepare the main consolidation adjustments and eliminate intragroup balances and transactions.
4. Distinguish subsidiaries, associates, joint ventures and joint operations.
5. Apply the equity method under IAS 28.
6. Account for changes in ownership interests and loss of control.
7. Evaluate judgment, disclosure, governance and implementation issues.

1. The reporting boundary: control, significant influence and joint control

Control under IFRS 10

An investor controls an investee when it has all three of the following:

• power over the investee;
• exposure, or rights, to variable returns from involvement with the investee; and
• the ability to use power to affect those returns.

Power usually arises from voting rights, but may arise from contractual rights, decision-making authority, potential voting rights or a combination of dispersed shareholders. Substantive rights can be exercised in practice; merely protective rights do not normally confer power. Assessment is continuous, not a one-time legal conclusion.

Control may exist with less than a majority of voting rights. For example, a shareholder holding 42% may control an entity if the remaining shares are widely dispersed and the shareholder has consistently dominated shareholder meetings. Conversely, majority ownership may not produce control where another party has substantive rights that direct relevant activities.

Significant influence under IAS 28

Significant influence is the power to participate in financial and operating policy decisions without control or joint control. A holding of 20% or more of voting power creates a rebuttable presumption of significant influence. Indicators include board representation, participation in policy-making, material transactions, interchange of management personnel and provision of essential technical information.

Joint control under IFRS 11

Joint control exists only when decisions about relevant activities require unanimous consent of the parties sharing control. Classification depends on rights and obligations rather than the legal label of the arrangement:

2. The acquisition method under IFRS 3

IFRS 3 applies to transactions in which an acquirer obtains control of a business. A business is an integrated set of activities and assets capable of being conducted and managed to provide goods or services, generate investment income, or produce other ordinary income. The optional concentration test may permit an entity to conclude that an acquired group of assets is not a business when substantially all fair value is concentrated in a single identifiable asset or group of similar identifiable assets.

The acquisition method has four central steps:

1. identify the acquirer;
2. determine the acquisition date;
3. recognise and measure identifiable assets acquired, liabilities assumed and non-controlling interests; and
4. recognise goodwill or a bargain purchase gain.

Identifying the acquirer and acquisition date

The acquirer is generally the entity obtaining control. In an exchange of equity interests, the legal issuer is not always the accounting acquirer; reverse acquisitions require analysis of relative voting rights, governing-body composition, senior management and the terms of the exchange.

The acquisition date is the date on which control is obtained. It may differ from the signing date, announcement date or settlement date. Measurement of the acquired assets and liabilities is based on conditions existing at that date.

Recognition and measurement principles

At the acquisition date, the acquirer recognises identifiable assets acquired and liabilities assumed separately from goodwill if they meet the conceptual definitions and can be reliably measured. Most are measured at acquisition-date fair value. Exceptions include deferred tax assets and liabilities under IAS 12, employee benefits under IAS 19, leases under IFRS 16, insurance contracts under IFRS 17, and certain assets held for sale.

An identifiable intangible asset is recognised separately from goodwill when it is separable or arises from contractual or other legal rights. Customer relationships, brands, patents, technology, licences and order backlogs may therefore be recognised even if the acquiree had not previously recognised them. The subsequent useful life and impairment assessment must then be determined under the relevant standards.

Consideration transferred

Consideration includes assets transferred, liabilities incurred to former owners and equity instruments issued, measured at fair value at the acquisition date. Contingent consideration is initially recognised at fair value. Subsequent changes are generally recognised in profit or loss unless the arrangement is classified as equity or the change is a measurement-period adjustment relating to acquisition-date facts.

Acquisition-related costs, such as advisory, legal, valuation and due-diligence fees, are generally expensed as incurred. Costs of issuing debt or equity are accounted for under the relevant financial-instrument requirements rather than treated as acquisition consideration.

Non-controlling interests

Non-controlling interest (NCI) is the equity in a subsidiary not attributable, directly or indirectly, to the parent. For each business combination, the acquirer may generally choose to measure NCI either:

• at fair value, producing full goodwill; or
• at the NCI’s proportionate share of the acquiree’s identifiable net assets, producing partial goodwill.

The choice may affect subsequent impairment because full goodwill includes goodwill attributable to NCI, whereas partial goodwill recognises only the parent’s share.

Goodwill and bargain purchase

The general goodwill calculation is:

The terms mean:

• consideration transferred: fair value of what the acquirer gives;
• fair value of NCI: the selected NCI measurement amount;
• previously held interest: fair value in a step acquisition;
• identifiable net assets: fair value of identifiable assets less liabilities assumed.

The formula applies at the acquisition date and assumes all components have been measured under IFRS 3. If the result is positive, goodwill is recognised. Goodwill represents expected synergies, assembled workforce, going-concern advantages and other benefits that cannot be separately identified and measured.

If the result is negative, management must reassess identification and measurement before recognising a bargain purchase gain in profit or loss. Bargain purchases are unusual and require careful documentation because they may signal distress, forced sale conditions or valuation error.

Worked example: acquisition accounting

Parent acquires 80% of Subsidiary for CU 920. The fair value of NCI is CU 210. At acquisition, the fair value of identifiable net assets is CU 1,000, including a previously unrecognised customer relationship of CU 150. Ignore tax effects.

The consolidated acquisition analysis recognises identifiable net assets of CU 1,000, NCI of CU 210 and goodwill of CU 130. The parent’s separate financial statements may record an investment of CU 920, but the consolidated statement of financial position replaces that investment with the subsidiary’s underlying assets and liabilities, NCI and goodwill.

If NCI had instead been measured at its proportionate share, its amount would be CU 200 (20% × CU 1,000), and partial goodwill would be CU 120 (CU 920 + CU 200 − CU 1,000). The choice changes goodwill by CU 10 but does not change the total fair value of the acquired identifiable net assets.

3. Consolidated financial statements

A parent presents consolidated financial statements unless an applicable exemption is met. Consolidation combines like items of assets, liabilities, equity, income, expenses and cash flows of the parent and subsidiaries as if the group were a single economic entity.

The consolidation process normally involves:

1. aligning accounting policies;
2. aligning reporting dates or accounting for significant intervening transactions;
3. combining the financial statements line by line;
4. eliminating the parent’s investment against the subsidiary’s pre-acquisition equity;
5. recognising acquisition-date fair-value adjustments and related subsequent effects;
6. recognising NCI in equity and attributing profit or loss and other comprehensive income to NCI; and
7. eliminating all intragroup balances and transactions.

Consolidation does not create a new legal entity. It is a reporting technique that reflects the group’s economic boundary.

Acquisition-date and post-acquisition equity

The subsidiary’s equity existing at acquisition is eliminated against the parent’s investment. Post-acquisition changes in the subsidiary’s net assets contribute to consolidated equity, subject to adjustments for fair-value depreciation, amortisation, impairment and tax. Profits attributable to NCI are presented separately from profit attributable to owners of the parent.

NCI can be measured at fair value or proportionate share at acquisition, but after acquisition NCI participates in changes in the subsidiary’s net assets according to its ownership interest, subject to the applicable IFRS requirements. Losses may be allocated to NCI even when this creates a deficit balance, unless the NCI has a contractual obligation and ability to fund the deficit or another IFRS requirement applies.

Intragroup eliminations

The group must eliminate transactions that do not represent transactions with external parties. Common adjustments include:

• receivables against payables;
• intragroup loans and related interest;
• sales against purchases or cost of sales;
• management fees and dividends;
• unrealised profit in inventory; and
• unrealised profit on transfers of property, plant and equipment.

Eliminations are made in full, not merely in proportion to the parent’s ownership, because the consolidated group is presented as one entity. Tax effects of temporary differences arising from eliminations are recognised when required by IAS 12.

Unrealised profit in inventory

Suppose Parent sells inventory costing CU 60 to Subsidiary for CU 90. At year-end, the inventory remains unsold outside the group. The group has not earned the CU 30 profit. Consolidation therefore reduces inventory and profit by CU 30. If the inventory is sold externally in the following period, the previously eliminated profit is recognised through the subsequent cost of sales adjustment.

When the seller is the parent, the adjustment affects profit attributable to the parent. When the seller is a subsidiary, the adjustment may affect both parent and NCI allocations because the subsidiary’s reported profit is reduced before allocation.

Intragroup property transfer

If a group entity sells equipment to another group entity at a gain, the gain is eliminated. The asset is restated to its original group carrying amount, and depreciation is corrected to the amount that would have been recorded had the transfer not occurred. This requires two adjustments: elimination of the unrealised gain and correction of excess depreciation. The tax consequences must also be assessed.

4. Subsequent measurement and impairment of goodwill

Goodwill is not amortised under IFRS. It is allocated to cash-generating units (CGUs), or groups of CGUs, expected to benefit from the combination and tested for impairment under IAS 36 at least annually and whenever impairment indicators exist.

A CGU is the smallest identifiable group of assets generating cash inflows largely independent of other assets. Goodwill allocation requires disciplined analysis; management should not allocate goodwill to an excessively large unit merely to avoid recognising impairment.

Impairment loss is measured when the carrying amount exceeds recoverable amount. Recoverable amount is the higher of value in use and fair value less costs of disposal. An impairment loss for a CGU is allocated first to goodwill and then pro rata to other assets, subject to restrictions. Goodwill impairment is never reversed under IFRS, even if the CGU later recovers.

Forecasts, discount rates, terminal growth assumptions and expected synergies are significant estimates. Sensitivity analysis is important because small changes in assumptions can produce large changes in headroom.

5. Changes in ownership interests and loss of control

Transactions with owners that do not change control are equity transactions. For example, a parent buying an additional interest from NCI or selling part of its interest while retaining control does not produce a gain or loss in profit or loss. The difference between consideration and the adjustment to NCI is recognised directly in equity attributable to owners of the parent.

When a parent loses control, it:

1. derecognises the subsidiary’s assets and liabilities, including goodwill;
2. derecognises NCI;
3. recognises consideration received;
4. recognises any retained investment at fair value; and
5. recognises the resulting gain or loss in profit or loss, subject to applicable requirements.

The retained interest is then accounted for under the relevant standard: IFRS 9, IAS 28 or IFRS 11. A disposal may also require reclassification of accumulated other comprehensive income associated with the subsidiary.

A step acquisition follows a similar logic. The previously held interest is remeasured to fair value at the acquisition date, with the resulting gain or loss generally recognised in profit or loss or other comprehensive income as appropriate. That fair value becomes part of the goodwill calculation.

6. Associates and the equity method

Under IAS 28, an investment in an associate or qualifying joint venture is initially recognised at cost. Subsequently, the investor adjusts the carrying amount for its share of the investee’s profit or loss and other comprehensive income. Distributions received reduce the carrying amount rather than being recognised as dividend income under the equity method.

A simplified carrying amount relationship is:

The formula assumes the investment remains within the equity-method model and excludes specific adjustments such as impairment, changes in ownership and transactions requiring separate treatment. The investor also adjusts for differences between its accounting policies and those of the investee, and for fair-value adjustments identified at acquisition.

Example: an investor acquires 30% of an associate for CU 500. During the year, the associate reports profit of CU 120, OCI of CU 20 and dividends of CU 30. Ignoring fair-value adjustments and impairment:

The investor recognises share of profit of CU 36, share of OCI of CU 6 and reduces the investment by dividends of CU 9. The investment balance is CU 533.

The equity method is not ordinary consolidation. The investor does not combine the associate’s individual assets and liabilities line by line. Instead, one investment line and the investor’s share of profit or loss and OCI are presented.

If the investor’s share of losses equals or exceeds its interest, it ordinarily stops recognising further losses unless it has legal or constructive obligations or has made payments on behalf of the investee. Impairment indicators are assessed under IAS 28 and IAS 36.

Transactions between an investor and an associate are often described as upstream or downstream transactions. Unrealised gains are eliminated to the extent of the investor’s interest when required, reflecting the fact that the transaction is not fully external to the investor’s economic interest.

7. Joint arrangements under IFRS 11

Classification is based on the parties’ rights and obligations. A joint operation may be conducted through a separate vehicle, but the contractual terms and other facts may give parties direct rights to assets and obligations for liabilities. A joint operator recognises its share of assets, liabilities, revenue and expenses, including its share of jointly incurred items.

A joint venture gives the parties rights to the net assets. It is accounted for using the equity method under IAS 28. The distinction is therefore substantive: the accounting follows economic rights, not simply the existence of a separate legal vehicle.

Professionals should examine:

• the legal form of the vehicle;
• contractual terms;
• other facts and circumstances;
• whether outputs are substantially the only source of cash flows; and
• whether the arrangement is designed to provide the parties with assets or services rather than a residual net return.

8. Detailed illustrative case: Northstar Group

Background

Northstar plc acquires 75% of Meridian Ltd on 1 January 20X5 for CU 1,500. The fair value of NCI is CU 430. Meridian’s identifiable net assets have a fair value of CU 1,720, including a customer-relationship intangible of CU 240 not previously recognised. The intangible has a remaining useful life of eight years. Northstar chooses the fair-value method for NCI. Ignore tax in the initial analysis.

During 20X5, Meridian reports profit of CU 300. Northstar’s acquisition-date fair-value adjustment requires additional amortisation of CU 30 for the customer relationship. Meridian sells goods to Northstar for CU 200 at a 25% markup on cost; 40% of these goods remain in Northstar’s closing inventory. Northstar also sells equipment to Meridian at a gain of CU 50. The remaining useful life of the equipment at transfer is five years.

Analysis

Goodwill is:

The customer relationship produces acquisition-date recognition of CU 240. Its 20X5 amortisation is CU 30, reducing consolidated profit relative to Meridian’s reported profit.

Meridian’s sale to Northstar includes a 25% markup on cost. Sales of CU 200 imply cost of CU 160 because:

The total profit is CU 40. With 40% remaining in inventory, unrealised profit is CU 16. Consolidation reduces inventory and profit by CU 16. Because Meridian is the seller, the reduction affects Meridian’s post-acquisition profit and therefore the allocation between Northstar and NCI.

The equipment transfer gain of CU 50 is eliminated. Excess depreciation recorded after transfer is corrected by CU 10 (CU 50 ÷ five years), increasing consolidated profit relative to the transferee’s separate accounts. The net current-period effect of this transfer is therefore a reduction of CU 40: eliminate the CU 50 gain and reverse CU 10 of excess depreciation.

Approach and outcome

The consolidation worksheet should:

1. recognise goodwill of CU 210;
2. recognise the customer relationship of CU 240 at acquisition;
3. record CU 30 additional amortisation;
4. eliminate the CU 16 unrealised inventory profit;
5. eliminate the CU 50 equipment gain;
6. reverse CU 10 excess depreciation;
7. eliminate the parent’s investment against acquisition-date equity; and
8. present NCI and allocate adjusted post-acquisition profit.

The adjusted post-acquisition profit of Meridian for group purposes is:

This amount is a simplified illustration before considering other consolidation adjustments. The group must allocate it between Northstar and NCI according to the applicable ownership and transaction facts. The case demonstrates why consolidated profit cannot be obtained by simply adding the parent’s and subsidiary’s reported profits.

Learning points

The case illustrates that acquisition accounting changes subsequent earnings through fair-value depreciation or amortisation; intragroup profits must be removed until realised externally; transfers of non-current assets require both gain elimination and depreciation correction; and NCI affects both the statement of financial position and profit attribution.

9. Professional judgment, governance and contemporary practice

Business-combination reporting is highly judgmental. Key governance controls include an acquisition accounting committee, independent valuation specialists, documented control assessments, valuation-model review, integration of finance and legal teams, and post-acquisition review of forecast synergies.

Management should distinguish accounting estimates from strategic narratives. Forecast synergies used in purchase-price allocation and impairment testing must be supportable, consistently monitored and reconciled to budgets approved by those charged with governance. Aggressive goodwill allocation can defer impairment recognition and impair reporting credibility.

Disclosure should explain the nature and date of the combination, consideration transferred, recognised classes of assets and liabilities, goodwill, NCI, acquisition-related costs, revenue and profit contributed since acquisition, and pro forma information where required. Users also need meaningful information about measurement uncertainty and the expected strategic rationale.

Technology can improve the process through automated consolidation software, data lineage, intercompany matching, valuation databases and analytical review. Artificial intelligence may identify unusual intercompany balances or inconsistent ownership data, but it cannot replace professional judgment over control, fair value, useful lives or impairment. Model governance must address data quality, explainability, access controls, cybersecurity and human approval.

Important limitations remain. Fair value measurements may depend on unobservable inputs; goodwill is a residual rather than a directly observed asset; impairment testing can be delayed by optimistic forecasts; and legal ownership may not reflect substantive control. Analysts should therefore read acquisition disclosures together with cash-flow information, segment reporting, subsequent impairments and changes in operating performance.

Best-practice implementation checklist

• Establish a formal control assessment before deciding the accounting model.
• Identify the acquisition date and document why control begins then.
• Perform a complete purchase-price allocation, including internally generated intangibles of the acquiree.
• Separate acquisition-related costs from consideration.
• Select and document the NCI measurement election.
• Reconcile consolidation entries to legal-entity ledgers.
• Automate, but independently review, intercompany eliminations.
• Track fair-value adjustments through subsequent depreciation, amortisation and tax.
• Allocate goodwill to appropriate CGUs and perform robust sensitivity analysis.
• Maintain evidence for associates and joint arrangements, especially contractual rights and obligations.
• Present clear disclosures that allow users to understand performance and uncertainty.

Chapter Summary

IFRS group reporting begins with identifying the relationship between entities. Control leads to consolidation under IFRS 10; significant influence and qualifying joint ventures generally lead to the equity method under IAS 28; and joint operations require recognition of the party’s direct rights and obligations under IFRS 11. IFRS 3 applies the acquisition method when control of a business is obtained.

The acquisition method identifies the acquirer and acquisition date, recognises identifiable assets and liabilities at appropriate acquisition-date measurements, measures NCI, and records goodwill or a bargain purchase gain. Goodwill is subsequently tested for impairment rather than amortised. Consolidated statements combine group items, eliminate the parent’s investment and all intragroup effects, incorporate fair-value adjustments and allocate results to owners and NCI.

Changes in ownership without loss of control are equity transactions. Loss of control requires derecognition of the subsidiary and remeasurement of any retained interest. Accurate reporting depends on substantive analysis, reliable valuation, strong consolidation controls, transparent disclosure and careful governance of estimates and technology.

Key Terms

Control: Power over an investee, exposure to variable returns and ability to use power to affect those returns.

Acquirer: Entity that obtains control in a business combination.

Acquisition date: Date on which the acquirer obtains control.

Business combination: Transaction or event in which an acquirer obtains control of one or more businesses.

Acquisition method: IFRS 3 method for recognising and measuring a business combination.

Identifiable asset: Asset separable or arising from contractual or legal rights.

Goodwill: Residual amount representing future economic benefits not individually identified and separately recognised.

Non-controlling interest: Equity in a subsidiary not attributable to the parent.

Full goodwill: Goodwill measured using the fair value of NCI.

Partial goodwill: Goodwill measured using NCI’s proportionate share of identifiable net assets.

Consolidation: Presentation of parent and subsidiaries as a single economic entity.

Intragroup transaction: Transaction between entities within the consolidated group.

Associate: Entity over which the investor has significant influence.

Significant influence: Power to participate in policy decisions without control or joint control.

Equity method: Method recognising the investor’s share of an investee’s post-acquisition net assets and performance.

Joint control: Contractually agreed sharing of control requiring unanimous consent.

Joint operation: Joint arrangement giving parties direct rights to assets and obligations for liabilities.

Joint venture: Joint arrangement giving parties rights to net assets.

CGU: Smallest group of assets generating largely independent cash inflows for impairment testing.

Loss of control: Event in which a parent ceases to control a subsidiary.

Review Questions

5 Short Answer Questions

1. What three conditions constitute control under IFRS 10?
2. What is the difference between full goodwill and partial goodwill?
3. Why are intragroup profits eliminated in consolidated financial statements?
4. How are dividends from an associate treated under the equity method?
5. What is the principal accounting consequence of losing control of a subsidiary?

5 Long Answer Questions

1. Explain the acquisition method under IFRS 3, including the identification of the acquirer, acquisition date, identifiable net assets, NCI and goodwill.
2. Describe the consolidation process and explain how acquisition-date fair-value adjustments affect subsequent consolidated profit.
3. Compare subsidiaries, associates, joint ventures and joint operations, focusing on the rights and accounting consequences associated with each.
4. Explain the accounting for changes in ownership interests both when control is retained and when control is lost.
5. Critically evaluate the reliability and governance challenges associated with goodwill impairment testing.

3 Analytical / Application Questions

1. Parent buys 70% of Target for CU 840. Fair value of NCI is CU 290 and fair value of identifiable net assets is CU 1,000. Calculate goodwill and explain how the answer would differ if NCI were measured at its proportionate share.
2. A subsidiary sells inventory costing CU 120 to its parent for CU 150. One-third remains unsold at year-end. Calculate the unrealised profit and explain the effect on consolidated inventory and profit.
3. An investor owns 25% of an associate acquired for CU 400. During the year, the associate reports profit of CU 80, OCI of CU 12 and dividends of CU 20. Calculate the closing investment balance before impairment and explain each adjustment.

Multiple Choice Questions with Answers

Question 1

Which combination of conditions establishes control under IFRS 10?

A. Ownership of more than 20% of voting rights and receipt of dividends

B. Power, exposure to variable returns, and ability to use power to affect returns

C. Legal ownership, significant influence, and unanimous consent

D. Board representation, material transactions, and shared control

Correct Answer: B. Power, exposure to variable returns, and ability to use power to affect returns

Question 2

Parent pays CU 900 for a subsidiary, measures NCI at CU 180, and acquires identifiable net assets with a fair value of CU 950. What goodwill is recognised?

A. CU 130

B. CU 50

C. CU 1,030

D. CU 770

Correct Answer: A. CU 130

Question 3

Which item is generally expensed as incurred rather than included in consideration transferred in a business combination?

A. Fair value of shares issued to the acquiree’s owners

B. Fair value of contingent consideration

C. Acquisition-related legal and advisory fees

D. Fair value of assets transferred

Correct Answer: C. Acquisition-related legal and advisory fees

Question 4

A parent sells inventory costing CU 80 to a subsidiary for CU 100. Half remains unsold at year-end. What unrealised profit is eliminated?

A. CU 10

B. CU 20

C. CU 40

D. CU 50

Correct Answer: A. CU 10

Question 5

An investor applies the equity method to an associate. Which treatment is correct for dividends received?

A. Recognise dividend income and leave the investment unchanged

B. Reduce the carrying amount of the investment

C. Recognise the dividend in other comprehensive income

D. Eliminate the dividend against goodwill

Correct Answer: B. Reduce the carrying amount of the investment

Question 6

Which feature distinguishes a joint operation from a joint venture?

A. A joint operation always lacks a separate legal vehicle

B. A joint operation gives parties direct rights to assets and obligations for liabilities

C. A joint venture is never subject to joint control

D. A joint operation is always accounted for using the equity method

Correct Answer: B. A joint operation gives parties direct rights to assets and obligations for liabilities

Question 7

What happens when a parent sells an interest but retains control?

A. A gain or loss is always recognised in profit or loss

B. The subsidiary is derecognised

C. The transaction is generally accounted for as an equity transaction

D. The retained interest is remeasured to fair value through profit or loss

Correct Answer: C. The transaction is generally accounted for as an equity transaction

Question 8

Under IFRS, goodwill is generally:

A. Amortised over ten years

B. Recognised as an expense immediately

C. Tested for impairment at least annually and when indicators exist

D. Revalued through other comprehensive income each year

Correct Answer: C. Tested for impairment at least annually and when indicators exist

Question 9

An associate reports profit of CU 100. An investor owns 30%. Ignoring other adjustments, what share of profit does the investor recognise?

A. CU 30

B. CU 70

C. CU 100

D. CU 333

Correct Answer: A. CU 30

Question 10

When control of a subsidiary is lost, what is generally done with a retained investment?

A. It remains at the old carrying amount indefinitely

B. It is remeasured at fair value at the loss-of-control date

C. It is eliminated against NCI

D. It is automatically classified as goodwill

Correct Answer: B. It is remeasured at fair value at the loss-of-control date