Hi,
the question is from Jun 06 Ejoy,

It said that T Bay was acquired exclusively with a view to sales and on 31 May 2006 it meets the criteria of being disposal, so the company can classify it as Discontinued Operation and Held for the sales.

So the income statement of Ejoy is not consolidated, but put it as discontinous operation in consolidated income statmement.

However,

in Jun 03 Base,

It said that some holdings of Black will be sold in the middle of the year. After sales, it becomes an associate, so before the sales, we need to consolidate the income statement of Black as a subsidiary,

but after sales, the profit is consolidated as an associate.

I would like to ask the following

For T Bay

Why is the discontinued operation not consolidated even though it met the criteria at the end of the year because during the period of the whole year, it is a subsidiary of the parent.

However

For Black,

why is it consolidated by classifying it as a subsidiary(before sales) and as an associate (after sales) because during the year some period of time is subsidiary and some periods of time is associate.

Thank you very very much.

Dear Ckylwy,

It is just a presentation difference. IAS-1 Presentation of the Financial Statements has defined some benchmark for the presentation of the Fiancial Reports hence, it has said that Financial Statements should fulfil the criteria of reliability, relevance and understandability. So, If a subsidiary that has been classified as Discountinued Operation under the regime of IFRS-5(means it fulfils the creteria and conditions of IFRS-5) then it should be classdified under a separate header in the income statement after Profit from Continuing Operations as "<Loss>/Gain from Discontinued Operations". Although it will produce the same results as from the general IFRS-3 consolidation however with some differennt presentation(i.e. you do not need to add sales,costs and expenses of Discountinued Operation in continual activities instead you have to show the profits/<Losses> of Discountunied Opeerations Separately). This will not only provide the user with the true understanding of the current financial position of the entity but it will also affect his future investment decisions(i.e. he can easily understand that a subsidiary that has about to be sold had made a profit or loss of XYZ amount and thus these profits or losses will not longer be available after the sale of that subsidiary).



If you have seen the heading of the balance sheet(Statement of Financial Position) and Income Statement for you convinience i am giving here their headings.

For Balance Sheet you write the following heading.
Balance Sheet as at 31/Dec/20X1

For Incom Statement you write the following heading.
Income Statement for the year ending 31/Dec/20X1

So, keep in mind the above headings and see this explanation.

For balance sheet we present the current position(therefore we use the heading of as at[i.e. exactly at the year end]), however, for the income statement we use the word for the year ending(i.e. for the continual year, not exactly at the year end but right from the beginning till the end of the year). This implies that balance sheet shows the exactly current situation and income statement shows the continual/full year activities.

Now, comming back to your question the income statement that has been consolidated for the half year(under IAS-27 and IFRS-3) and for the other half it was not consolidates instead it was accounted for under equity accounting(IAS-28[investment in associate]) as per my previous explanation i have said that income statement is the place where every activity through out the year has to be provided this is the reason why we consolidated the income statement half way though the year and for other half we use Equity accounting{under IAS-28}.

But mind it whether you use entity accounting{under IAS-27 and IFRS-3} or equity accounting{under IAS-28} the end results will be same and no change will be disvcovered. However, the only change is the presentation difference(i.e. how it looks from its attributes). a simple example is the income statement under IFRS-3 where we consolidate every component of the subsidiary(i.e. sales, cost and expenses) and in the end we deduct a MINORITY INTEREST which inturn provide the same results as that of the equity accounting{because under IRFS-3 you have added 100% and then deducted 30%[of minority] i.e. you have added 70%} this is similar to equity accounting{Under IAS-28} in which case you do not need to add 100% and then deduct minority but you just need to add your share(for example 40% in profits after tax).

Hope this helps!

Regards,

Muhammad Amir.

Thank you very much.

It really helps.

Thank you so much for your time.

Steven