Sale of segment to a subsidiary

[saadkhan]

If a company plans to sell one of its segments to a FULLY OWNED subsidiary, will it account for that segment under IFRS 5 as a disposal group in its standalone financial statements???

[saadkhan]

The only reason for doubt is that paragraph 6 of IFRS 5 states

"An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use."

And selling the segment to a newly formed subsidiary is RESTRUCTURING the same operations and the purpose of the owners is still to recover the benefits of the segment through continuing use rather than through disposal.

So will IFRS still be applicable??

[Dard]

I agree with you saad. Selling something to a subsidiary means still having control and use of that part of the business

[saadkhan]

Yes. Further, selling the segment to a newly formed subsidiary (to restructure the group) can be seen as bringing about the following changes only

1) On the Balance Sheet The net assets and liabilities of the old segment would in effect become part of the investments of the company

2) On the Income Statement The segment profits will be replaced by dividends and capital gains


Hence recovery being through continued use rather than through disposal - loss of control!!!!