Question

Why do you think the IASB decided on the treatment of Loss on Discontinued Operations and Non-controlling interest Allocation they way they did? What was their reasoning or logic behind this decision?

Answer 1

1a. Loss on Discontinued operations:

Discontinuing Operations : Discontinued operations are the end results of operations of a component of an entity that is either being held for sale or which has already been disposed of. The results of operations must be reported and disclosed as a discontinued operation within the financial statements if both of the following conditions are present:

• If it is Resulting elimination: The disposal transaction will effect the operations and cash flows of the component being eliminated from company operations.
• If it is Continuing involvement: Presently there will be no significant Continuing involvement by the company in the operations of the component, once the disposal transaction has been completed. Continuing involvement here means the ability to influence the operating or financial policies of the disposed component.

It needs to be disclosed separately as discontinued operation in the financial statement. Total profit or loss from the discontinued operations needs to be reported in the financial statements.

b. Non - Controlling interest allocation: Non-controlling interest allocation means small shareholders holding small interest in equity of a subsidiary company and it is not countable in share of those having controlling interest (>50%). It is also known as minority shareholding.

The shareholding of non-controlling interest or minority shareholders should be mentioned and disclosed in consolidated Financial statement.

2a. Decision of IASB on treatment of "Loss on Discontinued Operations" :

The Treatment requires for disclosing the non-current assets classified separately and any resulting impairment loss reduces the carrying amount of the non-current assets in the disposal group in the order of allocation. Any Adjustments made in the current period shall be disclosed as a discontinued operation in prior periods must be separately disclosed.

b. Decision of IASB on treatment of "Non-Controlling Interest Allocation" :

The Treatment requires that an entity attributes the profit or loss of comprehensive income to the owners of the parent and to the non-controlling interests. The proportion allocated to the parent and non-controlling interests are determined on the basis of present ownership interests in the Company even if the non controlling interest is having a deficit balance.

3. As per IFRS -9

IFRS 9 prescribe two methods for this as follows :

A) At fair value through other comprehensive income (FVOCI) :

A1) If a financial asset meets contractual cash flows characteristics test and is to collect contractual cash flows and planning to sell financial assets, then such an asset has to be recognised at FVOCI.

A2) voluntarily choose to measure some equity instruments at FVOCI.

B) At fair value through profit or loss (FVTPL)

B1) All other financial assets other than above can be recognised under this method.

   B2) Derivative financial assets are automatically classified at FVTPL.