Business combinations achieved in stages

Few companies buy a subsidiary in one go. Many buy a small stake first, then add to it. What the accounts show on the day control is gained is a big change: an investment becomes a whole group member. The rules treat that day as if the old investment had been sold and the whole business bought.

A later purchase from the minority owners is different, because the group already controls the business, so it is treated as a deal between owners.

This topic covers the three kinds of step acquisition, the gain on remeasuring a previously held interest, goodwill when control is gained in stages, increasing a stake after control, the effect on the non-controlling interest (NCI), and how the profit or loss statement shows the pattern of ownership. The previous topics covered consolidation and associates. May 2026 Question 1(a) combined a previously held 30% associate with a further 50% purchase.

Key terms in plain English

Syllabus check

This topic is examinable under syllabus area C. It covers:

• when a step acquisition becomes a business combination and the remeasurement of the previously held interest;
• goodwill in stages (partial and full methods) and further purchases after control;
• the effect on the consolidated statement of profit or loss.

CAMA 2020 and step acquisitions

The Companies and Allied Matters Act 2020 (CAMA 2020) requires statements that follow International Financial Reporting Standards (IFRS) and give a true and fair view.

Three kinds of step acquisition

1. A simple investment (no significant influence, accounted for under IFRS 9), for example 10%, becomes a controlling holding.
2. An associate (accounted for under International Accounting Standard (IAS) 28), for example 35%, becomes a controlling holding.
3. A subsidiary becomes a bigger subsidiary, for example 60% to 80%.

The first two are treated alike. The third is not. IFRS 3 applies only when an entity obtains control. If control exists already, further purchases are transactions between owners.

Gaining control in stages

At the date control is gained, acquisition accounting begins.

1. Remeasure the previously held interest to fair value. The difference from its carrying amount is a gain or loss. It is as if the investor sold the old interest at fair value and then bought it again.
2. Where it goes: profit or loss for an associate or an investment at fair value through profit or loss. For an equity instrument held at fair value through other comprehensive income, the gain goes to other comprehensive income. The earlier reserve is moved to retained earnings within equity and is not recycled to profit or loss.
3. Goodwill = consideration transferred for the new shares + fair value of the previously held interest + NCI − net identifiable assets at the date control is gained.

The NCI is measured at its share of net assets or at fair value, as usual. Net assets are at fair value on the date control is gained, not on the date of the first purchase.

Buying more after control

If the parent already controls the subsidiary and buys more shares from the NCI, the group is dealing with its own owners:

• The assets and liabilities stay consolidated line by line.
• Goodwill does not change (unless impaired).
• The NCI falls by the fraction of its balance that is bought. This is its share of net assets at that date (and of goodwill under the full method).
• The difference between the price paid and the NCI removed goes to equity (an other component of equity). Cash falls by the price, or the parent’s share capital rises if shares are issued.

Entry: Dr non-controlling interest; Cr cash (or shares); Dr or Cr equity for the difference.

NCI during the year

If the stake changes part-way through the year, the NCI in profit or loss is time-apportioned, using the old percentage for the period before the purchase and the new one after.

The NCI in the statement of financial position starts from its balance at acquisition, adds its share of post-acquisition profit up to the purchase date, then falls by the fraction bought, then adds its new share of the remaining profit.

Pattern of ownership in profit or loss

The rules in more depth

Why the old interest is remeasured

Control changes the nature of the asset. The group now owns the whole business, so the old stake is valued at what it is worth on that day, and the previous gain is recognised.

Why no gain arises on a purchase from the NCI

The group already controls the business. The NCI are owners, and a deal with owners cannot make a profit for the group.

Why goodwill is fixed at the control date

Goodwill measures the business bought on that date. Later purchases from the NCI do not change what was bought.

Effect on analysis

A large remeasurement gain is not cash. It adds to profit in the year control is gained, so analysts exclude it when judging the trend.

Worked examples

1. Remeasure: Dr investment ₦20,000; Cr other comprehensive income (equity reserve) ₦20,000. There is no gain in profit or loss.
2. Goodwill = ₦3,900,000 + NCI (30% × ₦4,000,000 = ₦1,200,000) + ₦250,000 − ₦4,000,000 = ₦1,350,000.

1. Fair value of the 20% = ₦480m × 20/60 = ₦160m.
2. Net assets.
   300 + 450 = ₦750m.
   NCI (20%) = ₦150m.
3. Goodwill = 480 + 150 + 160 − 750 = ₦40m.
4. Gain on the previously held 20% = 160 − 120 = ₦40m in profit or loss.

Note: the gain of ₦40m assumes the 20% was still carried at its cost of ₦120m. If it had been remeasured to fair value in earlier periods, compare the fair value with that carrying amount.

1. Goodwill at 20X6 = ₦760,000 + ₦250,000 + NCI (30% × ₦850,000 = ₦255,000) − ₦850,000 = ₦415,000.
   It does not change in 20X8.
2. NCI bought.
   10% × ₦970,000 = ₦97,000 (30% × 970,000 = 291,000 falls to 20% × 970,000 = 194,000).
3. Dr non-controlling interest ₦97,000; Dr equity ₦8,000; Cr cash ₦105,000.

1. (a) NCI removed = ₦2,000,000. Cash paid ₦1,800,000. Difference ₦200,000 is a credit to equity. Dr NCI ₦2,000,000; Cr cash ₦1,800,000; Cr equity ₦200,000.
2. (b) NCI removed = 5/20 × ₦2,000,000 = ₦500,000.
   Cash paid ₦1,600,000.
   Difference ₦1,100,000 is a debit to equity.
   Dr NCI ₦500,000; Dr equity ₦1,100,000; Cr cash ₦1,600,000.

Note: ICAN’s journal for part (b) shows a debit and a credit to shareholders’ equity (₦1,100,000 and ₦1,600,000) with no entry for the cash. The credit should be to cash. Our entry is slightly different from ICAN’s but the amounts are the same.

1. NCI profit before the purchase (9 months) = 20% × ₦800,000 × 9/12 = ₦120,000.
   NCI balance before the purchase = ₦1,920,000 + ₦120,000 = ₦2,040,000.
2. Fraction bought = 6/20.
   Reduction = 6/20 × ₦2,040,000 = ₦612,000.
   NCI after = ₦1,428,000.
3. NCI profit after the purchase (3 months) = 14% × ₦800,000 × 3/12 = ₦28,000.
4. NCI at the year end.
   ₦1,428,000 + ₦28,000 = ₦1,456,000.
   NCI in profit or loss = ₦120,000 + ₦28,000 = ₦148,000.

1. Include 3/12 of S.
   Revenue = 10,000 + 1,500 = 11,500.
   Cost of sales = 7,000 + 1,200 = 8,200.
   Gross profit = 3,300.
2. Expenses = 1,000 + 75 = 1,075.
   Profit before tax = 2,225.
   Tax = 500 + 40 = 540.
   Profit = 1,685.
3. NCI = 30% × 740 × 3/12 = 55.5.
   Owners = 1,629.5.
4. The gain on remeasuring the 10% is also shown, but is not given here.

Note: ICAN’s example shows the gross profit as 3,380, but 11,500 − 8,200 is 3,300. The profit of 1,685 follows from 3,300, so our figure is slightly different from ICAN’s.

1. (a) Consolidated profit = 2,240 (all of both). NCI = 277.5. Owners = 1,962.5.
2. (b) Share of associate profit for 9 months = 40% × 740 × 9/12 = 222.
   Consolidate 3/12 of S: revenue 11,500, cost of sales 8,200, gross profit 3,300, expenses 1,075.
   Profit before tax = 3,300 − 1,075 + 222 = 2,447.
   Tax = 540.
   Profit = 1,907, before the gain on remeasuring the 40%.
3. NCI = 30% × 740 × 3/12 = 55.5.
   Owners = 1,851.5.

How to score full marks

• Identify the type of step acquisition and say whether 50% is crossed.
• Remeasure the old interest and say where the gain goes (profit or loss, or other comprehensive income).
• Use fair value at the control date for the old interest and the net assets.
• Show goodwill in full, with the NCI choice.
• For later purchases, calculate the NCI removed, give the equity entry and say goodwill is unchanged.
• For profit or loss, time-apportion and apply the right NCI percentage to each period.

Common mistakes in the exam

• Consolidating from the date of the first purchase.
• Leaving out the fair value of the old interest from goodwill.
• Recognising a gain or loss on a purchase from the NCI.
• Recalculating goodwill after control is held.
• Recycling the earlier reserve for an equity instrument at fair value through other comprehensive income.
• Applying the new NCI percentage to the whole year.
• Taking the difference on a purchase from the NCI to profit or loss.

Quick revision

• Crossing 50%: remeasure the old interest to fair value, gain or loss, then acquisition accounting.
• Goodwill = new consideration + fair value of old interest + NCI − net assets.
• Not crossing: an equity transaction. Goodwill unchanged. Equity takes the difference.
• NCI removed = fraction bought × NCI at that date.
• Profit or loss: time-apportion. Two NCI percentages in the year of change.
• CAMA 2020: ss. 377(1), 378, 379 to 381, 374(1), 385, 404(7).

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

Spotted a mistake? Tell us and we will check it.