Groups do not only grow. A parent may sell a subsidiary to raise cash, because it is making losses, or because it no longer fits the strategy. In the accounts, the day control is lost is the mirror image of the day it was gained. The group stops adding the subsidiary’s assets and liabilities, records what it received, and works out the profit or loss on the sale.
This topic covers full disposals, part disposals that leave the parent with an associate or a simple investment, part disposals that keep control, the treatment of a subsidiary that is not a business, and the presentation of a disposal as a discontinued operation. The previous topics covered acquisitions and groups. The next topic covers separate financial statements and the disclosure of interests in other entities.
In 30 seconds
When control is lost, the group derecognises the subsidiary’s assets, liabilities, goodwill and non-controlling interest (NCI), recognises the proceeds and any retained interest at fair value, and shows the difference as a profit or loss in the consolidated statement of profit or loss: proceeds + fair value of retained interest + NCI − net assets − goodwill. Consolidate the subsidiary only up to the disposal date.
If control is kept, the sale is a transaction between owners: no profit or loss, goodwill unchanged, and the difference between the proceeds and the NCI taken on goes to equity. If the subsidiary is a major line of business, show its result and the gain together as one line for discontinued operations.
In the parent’s own statements, the gain is simply proceeds less the carrying amount (cost) of the investment.
Key terms in plain English
| Term | What it means |
|---|---|
| Loss of control | The parent can no longer direct the subsidiary |
| Residual (retained) interest | The shares the parent still holds after a part disposal |
| Part disposal | Selling some, but not all, of the shares in a subsidiary |
| Equity adjustment | An entry in equity instead of in profit or loss, used when control is kept |
| Discontinued operation | A component that has been sold or held for sale and is a major line of business or area, or a subsidiary acquired for resale |
| Reclassification adjustment | Moving an amount from other comprehensive income to profit or loss on disposal |
Syllabus check
This topic is examinable under syllabus area C. It covers:
- the profit or loss on disposal in the parent’s separate statements and in the group statements, including goodwill, NCI and any retained investment;
- full and part disposals, the effect on the consolidated statement of profit or loss, and the link to International Financial Reporting Standard (IFRS) 5.
CAMA 2020 and disposals
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.
| Section | What it says | Link to this topic |
|---|---|---|
| s. 377(1) and s. 378 | Directors prepare statements that follow IFRS and give a true and fair view | Disposals follow IFRS 10 and IFRS 5 |
| ss. 379 to 381 | The provisions on group accounts, as ICAN teaches them | The group statements change when control is lost |
| s. 374(1) | The company keeps accounting records | Sale agreements and net assets at the disposal date are kept |
| s. 385 | The directors\u2019 report covers performance and risk | Disposals and strategy are discussed |
| s. 404(7) | The audit committee reviews policies and internal control | It can review the calculation of the gain |
Full disposal
In the parent’s own statements
The investment is a non-current asset. Dr cash (proceeds); Cr investment (carrying amount, usually cost); the balance is the profit or loss on disposal.
In the group statements
Two tasks: (1) reflect the pattern of ownership by consolidating the subsidiary from the start of the year to the date of disposal (use time apportionment), and (2) show the profit or loss on disposal. Consolidating to the disposal date is also needed to find the net assets that leave the group.
| Group profit or loss on disposal | |
|---|---|
| Proceeds | X |
| Fair value of any retained interest | X |
| NCI at the disposal date (added back) | X |
| Net assets of the subsidiary at the disposal date | (X) |
| Goodwill still carried (cost less impairment) | (X) |
| Profit or loss | X |
Support it with:
- goodwill at acquisition (from the net assets at acquisition)
- net assets at the disposal date (including the profit to that date, less any dividend paid in the year but not yet recorded)
- the NCI at the disposal date (its share of net assets, plus its share of goodwill under the full method)
Step-by-step
- Set out columns for the parent, the subsidiary (time-apportioned) and the group.
- Prepare the net assets summary at the disposal date and at acquisition.
- Calculate goodwill at acquisition and the NCI at the disposal date.
- Calculate the profit or loss on disposal.
- Put it in the consolidated statement and finish it off, with the NCI on the subsidiary’s profit to the disposal date.
Part disposals
Control lost, an associate retained
Example: 90% reduced to 40%. Calculate the gain with the same formula, including the fair value of the 40% retained. The retained interest starts as an investment in an associate at that fair value (equity method under International Accounting Standard (IAS) 28). Consolidate the subsidiary to the disposal date, then include the share of the associate’s profit from that date.
Control lost, a simple investment retained
Example: 90% reduced to 10%. The retained interest is recorded at fair value as a financial asset under IFRS 9, and dividends after the disposal are income. Amounts in other comprehensive income that relate to the subsidiary are accounted for as if the parent had sold the related assets directly (for example a foreign exchange translation reserve is reclassified to profit or loss).
Associate reduced to an investment
When significant influence is lost, the gain = proceeds + fair value of the interest retained − the carrying amount of the investment (cost plus the share of post-acquisition profit, less impairment).
Control kept (for example 90% to 80%)
A transaction with owners. No gain or loss, no change to goodwill, and the difference between the proceeds and the amount by which the NCI increases goes to equity (an other component of equity). Dr cash; Cr NCI (the fraction sold × net assets, plus goodwill share under the full method); Dr or Cr equity.
A subsidiary that is not a business
Normally on loss of control the gain or loss, including the revaluation of the retained interest, is recognised in full. A 2014 amendment to IFRS 10 and IAS 28 says that, where a subsidiary that is not a business is sold to an associate or joint venture, the gain is recognised only to the extent of the unrelated investors’ interests in the associate or joint venture.
The rest is eliminated against the investment. The same applies to the revaluation gain on any associate retained.
Note: ICAN teaches this as a new rule. The International Accounting Standards Board postponed the effective date of this amendment indefinitely in December 2015, and early application is permitted. So it is not mandatory unless the question says to apply it. In the exam, follow the question, and state that the rule is optional if it is not mentioned.
Disposals and IFRS 5
A discontinued operation is a component (clearly distinguishable operations and cash flows) that has been sold or is held for sale and (a) is a separate major line of business or area of operations, (b) is part of a single plan to dispose of such a line or area, or (c) is a subsidiary acquired exclusively for resale. This changes the presentation, not the measurement.
The face of the statement of profit or loss shows a single amount: the post-tax profit or loss of the discontinued operation plus the post-tax gain or loss on the disposal. The subsidiary is not shown line by line.
The rules in more depth
Why the retained interest is at fair value
When control ends, the group ceases to hold the subsidiary and starts to hold a different asset. That new asset starts at fair value, and the previous holding gain is recognised in the gain on disposal.
Why there is no gain when control is kept
The group still controls the business. It has only changed how much of it the NCI owns. A deal with owners does not make a profit.
Why goodwill is taken out
Goodwill belongs to the subsidiary that has gone. If it is left in the statements, it would show an asset that the group no longer holds.
Effect on analysis
A large gain on disposal is not operating profit. Analysts remove it and look at the continuing business.
Worked examples
Example 1: a full disposal, separate and group statements. Champion plc held 70% of Hercules for many years. On 31 December it sold all of it for ₦2,100,000. The cost was ₦2,000,000. The fair value of Hercules’s net assets at acquisition was ₦1,900,000, and the net assets at the disposal date are ₦2,400,000. NCI is at its share of net assets.
- Separate statements:
₦2,100,000 − ₦2,000,000 = ₦100,000 profit. - Goodwill = ₦2,000,000 − 70% × ₦1,900,000 (₦1,330,000) = ₦670,000.
NCI at disposal = 30% × ₦2,400,000 = ₦720,000. - Group, no impairment:
2,100,000 + 720,000 − 2,400,000 − 670,000 = ₦250,000 loss. - Group, with a goodwill impairment of ₦470,000.
(goodwill now ₦200,000): 2,100,000 + 720,000 − 2,400,000 − 200,000 = ₦220,000 profit.
Note: ICAN’s text says that “IFRS 11” requires an interest in a subsidiary to be consolidated up to the date of disposal. It means IFRS 10, so ours is slightly different from ICAN’s.
Example 2: a disposal part-way through the year. Kingdom bought 80% of Westville on 1 January 2015 for ₦280,000 when Westville had share capital of ₦100,000 and retained earnings of ₦188,000. The NCI had a fair value of ₦67,000 (full goodwill). Goodwill is not impaired. On 30 June 2018 it sold the whole holding for ₦350,000. Westville’s retained earnings at 1 January 2018 were ₦215,000 and its profit for 2018 was ₦24,000, earned evenly.
A dividend of ₦10,000 was paid in March 2018 and has not been recorded.
- Net assets at disposal.
100,000 + 215,000 + 12,000 (half of the profit) − 10,000 = ₦317,000. - Goodwill = (280,000 + 67,000) − (100,000 + 188,000) = ₦59,000.
- NCI at disposal.
20% × 317,000 (63,400) + goodwill share (67,000 − 20% × 288,000 = 9,400) = ₦72,800. - Profit = 350,000 + 72,800 − 317,000 − 59,000 = ₦46,800.
Example 3: the group income statement after a full disposal. H bought 90% of S four years ago for ₦3,750 (thousand) when S’s retained earnings were ₦500 and its share capital ₦3,000. It sold all of it on 30 September 20X4 for ₦9,500. S does not qualify as a discontinued operation. For the year: H revenue 22,950, expenses 10,000, tax 5,400; S revenue 8,800, expenses 5,000, tax 2,150 (profit 1,650); S’s retained earnings brought forward were 1,850.
- S for 9 months: revenue 6,600, expenses 3,750, tax 1,612, profit 1,238.
Net assets at disposal = 3,000 + 1,850 + 1,238 = 6,088. - Goodwill = 3,750 + (10% × 3,500 = 350) − 3,500 = 600.
NCI at disposal = 10% × 6,088 = 609. - Profit on disposal.
9,500 + 609 − 6,088 − 600 = 3,421. - Group: revenue 29,550; expenses 13,750; operating profit 15,800; profit on disposal 3,421; profit before tax 19,221; tax 7,012; profit 12,209.
NCI = 10% × 1,238 = 124.
Owners = 12,085.
Example 4: control lost, an associate retained. The same facts, but H sold only 50% of S for ₦5,000 on 30 September. The remaining 40% has a fair value of ₦3,500 and gives significant influence.
- Gain = 5,000 + 3,500 + 609 (NCI) − 6,088 − 600 = 2,421.
- Share of profit of the associate for the last three months = 40% × (1,650 − 1,238 = 412) = 165.
- Group: operating profit 15,800; share of associate 165; gain 2,421; profit before tax 18,386; tax 7,012; profit 11,374. NCI 124. Owners 11,250.
Example 5: a part disposal in the group statements. Allister held 75% of Brown. On 31 December 20X8 it sold two-thirds of that holding (50%) for ₦490,000. The net assets of Brown are ₦800,000. Goodwill was fully impaired. The fair value of the 25% retained is ₦220,000. NCI is at its share of net assets.
- NCI derecognised.
25% × ₦800,000 = ₦200,000. - Gain = 490,000 + 220,000 + 200,000 − 800,000 − 0 = ₦110,000.
- Split.
realised gain 490,000 − (50% × 800,000 = 400,000) = 90,000
holding gain on the retained 25% = 220,000 − 200,000 = 20,000.
Total ₦110,000.
Note: ICAN’s working writes the total as “(i − ii)”, but the two parts are added (90,000 + 20,000). The figure of ₦110,000 is right.
Example 6: control kept. H sells 10% of S (90% reduced to 80%) on 30 September for ₦1,000, with the net assets at that date ₦6,088.
- Net assets transferred to the NCI.
10% × 6,088 = 609. - Dr cash 1,000; Cr NCI 609; Cr other components of equity 391. No gain in profit or loss and no change in goodwill.
- NCI in profit or loss for the year.
10% × 1,650 × 9/12 (124) + 20% × 1,650 × 3/12 (83) = 207.
Group profit 9,200, owners 8,993.
Note: ICAN’s question on a similar sale of 10% of Billings also gives a consolidated retained earnings working. We could not reconcile it to the net assets of the group, so we have not reproduced it. The equity adjustment (₦27.2 thousand) and the profit split in that solution are correct.
Example 7: presentation as a discontinued operation. The facts of Example 3, but S is a discontinued operation.
- Continuing: revenue 22,950; expenses 10,000; profit before tax 12,950; tax 5,400; profit from continuing operations 7,550.
- Discontinued.
S’s profit to the disposal date 1,238 + gain 3,421 = 4,659, one line. - Profit for the year 12,209. NCI 124. Owners 12,085. The total is the same. Only the presentation changes.
Example 8: a subsidiary that is not a business, sold to an associate. H owns 100% of S and 20% of A. It sells 70% of S to A for ₦210m. The net assets of S are ₦100m and the retained 30% is worth ₦90m.
- Total gain.
210 + 90 − 100 = ₦200m.
Sale element = 210 − 70 = 140.
Revaluation of the 30% = 90 − 30 = 60. - Unrelated investors hold 80% of A, so recognise 80% × 140 = ₦112m.
- H holds 30% directly plus 14% indirectly (20% of 70%) = 44% of S, so unrelated investors hold 56%.
Recognise 56% × 60 = ₦33.6m. - Total recognised ≈ ₦145.6m (ICAN rounds to ₦146m). The rest is eliminated against the investments. This applies only if the amendment is adopted (see the note above).
How to score full marks
- Decide first: is control lost or kept?
- If lost, use the full formula: proceeds, retained interest at fair value, NCI, net assets, goodwill.
- Consolidate to the disposal date and time-apportion.
- Remember dividends paid before the disposal date.
- If control is kept, calculate the equity adjustment and say that goodwill does not change.
- Show the separate-statements gain (proceeds less cost) if asked.
- For discontinued operations, give one line for result and gain.
Common mistakes in the exam
- Recognising a gain when control is kept.
- Using the net assets at the last year end and not at the disposal date.
- Leaving out goodwill or the NCI from the gain.
- Ignoring the fair value of a retained interest.
- Consolidating the subsidiary for the whole year.
- Using the cost of the investment as the group’s carrying amount.
- Applying the amendment on a subsidiary that is not a business without being told to.
Quick revision
- Control lost: proceeds + retained interest at fair value + NCI − net assets − goodwill. Profit or loss.
- Control kept: no profit or loss, goodwill unchanged, equity takes the difference.
- Consolidate to the disposal date.
- Separate statements: proceeds − cost.
- Discontinued operation: one line.
- 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.
Question 1. On loss of control, the retained interest is recognised at:
- Cost
- Fair value
- Nil
- Net assets
Show the answer
B. The gain includes its fair value.
Question 2. A sale that leaves the parent in control gives:
- A profit in profit or loss
- An equity adjustment
- A goodwill write-off
- A discontinued operation
Show the answer
B. It is a deal between owners.
Question 3. The subsidiary is consolidated up to:
- The year end
- The disposal date
- The acquisition date
- The date of the audit report
Show the answer
B. Use time apportionment.
Question 4. Goodwill in the calculation of the gain is:
- Ignored
- The carrying amount at disposal
- Its original cost always
- Added to proceeds
Show the answer
B. Cost less impairment.
Question 5. In the parent’s own statements the gain on a full disposal is proceeds less:
- Net assets
- Carrying amount (cost) of the investment
- Goodwill
- NCI
Show the answer
B. It is a normal asset disposal.
Question 6. A discontinued operation is presented as:
- Line by line
- A single amount
- Not at all
- Equity
Show the answer
B. Post-tax result and gain together.
Question 7. On a part disposal with loss of control, the NCI is:
- Kept
- Derecognised
- Added to goodwill
- Written off to equity
Show the answer
B. It is included in the gain formula.
Question 8. A foreign exchange translation reserve on loss of control is:
- Left in equity
- Reclassified to profit or loss
- Added to goodwill
- Deducted from the NCI
Show the answer
B. As if the assets were sold directly.
Question 9. The amendment on sales of non-business subsidiaries to associates is:
- Mandatory from 2016
- Postponed indefinitely, with early application permitted
- Repealed
- Applies to all disposals
Show the answer
B. December 2015.
Question 10. Which section of CAMA 2020 requires the statements to follow IFRS?
- Section 378
- Section 400
- Section 405
- Section 409
Show the answer
A. IFRS 10 and IFRS 5 are part of IFRS.
Written questions
Question 11 (10 marks). (a) Explain the accounting when a parent loses control of a subsidiary in a part disposal. (5 marks) (b) Explain the accounting when a parent sells part of its holding but keeps control. (5 marks)
Question 12 (20 marks). P bought 80% of S for ₦900,000 when S’s net assets had a fair value of ₦1,000,000. S’s net assets at the last year end were ₦1,300,000 and its profit for the year is ₦400,000, earned evenly. On 30 September P sold its whole holding for ₦1,600,000. There is no impairment. (a) Calculate the group profit on disposal with the NCI at its share of net assets.
(8 marks) (b) Calculate it if the NCI at acquisition had a fair value of ₦230,000. (4 marks) (c) Calculate the gain if P had instead sold 50% of S for ₦1,000,000 leaving a 30% holding with a fair value of ₦700,000 (NCI at its share of net assets). (6 marks) (d) State how the disposal is presented if S is a discontinued operation. (2 marks)
Question 13 (10 marks). H owns 90% of T. On 1 October it sells 10% for ₦1,200,000 when T’s net assets are ₦8,000,000. T’s profit for the year is ₦600,000, earned evenly. (a) Show the equity entry. (4 marks) (b) Calculate the NCI in profit or loss. (4 marks) (c) Explain why no gain arises. (2 marks)
Model answers
Show the model answer to Question 11
(a) Control lost (5 marks). The parent derecognises the subsidiary’s assets, liabilities, goodwill and the NCI. (1.5) It recognises the proceeds and the retained interest at fair value. (1.5) The difference is a profit or loss in the consolidated statement of profit or loss. (1) The subsidiary is consolidated to the disposal date, and any retained interest is then an associate or an investment. (1)
(b) Control kept (5 marks). The sale is a transaction between owners. (1) No gain or loss is recognised. (1) Goodwill does not change. (1) The NCI increases by the share of net assets transferred. (1) The difference between the proceeds and the NCI increase goes to equity. (1)
Show the model answer to Question 12
(a) Proportionate NCI (8 marks).
- Net assets at disposal.
1,300,000 + 9/12 × 400,000 = ₦1,600,000. (2) - Goodwill = 900,000 + 20% × 1,000,000 − 1,000,000 = ₦100,000. (2)
- NCI = 20% × 1,600,000 = ₦320,000. (2)
- Profit = 1,600,000 + 320,000 − 1,600,000 − 100,000 = ₦220,000. (2)
(b) Fair value NCI (4 marks).
- Goodwill = 900,000 + 230,000 − 1,000,000 = ₦130,000.
- NCI = 320,000 + 30,000 = ₦350,000. (2)
- Profit = 1,600,000 + 350,000 − 1,600,000 − 130,000 = ₦220,000, the same. (2)
(c) Part disposal (6 marks).
- Proceeds 1,000,000 + retained interest 700,000 + NCI 320,000 = 2,020,000. (3)
- Less net assets 1,600,000 and goodwill 100,000. (2)
- Gain = ₦320,000. (1)
(d) Discontinued (2 marks). One line on the face of the statement: the post-tax profit to the disposal date plus the post-tax gain. (2)
Show the model answer to Question 13
(a) Equity entry (4 marks).
- NCI taken on.
10% × 8,000,000 = ₦800,000. (1.5) - Dr cash 1,200,000; Cr NCI 800,000; Cr other components of equity 400,000. (2.5)
(b) NCI profit (4 marks).
- 10% × 600,000 × 9/12 = ₦45,000. (2)
- 20% × 600,000 × 3/12 = ₦30,000. (1)
- Total = ₦75,000. (1)
(c) No gain (2 marks). The group still controls T, so the sale is a transaction with owners. (1) The difference between the proceeds and the NCI taken on goes to equity. (1)
Pathfinder on Disposal of subsidiaries
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
We found no question on the disposal of a subsidiary in the November 2025 or May 2026 Pathfinders. November 2025 Question 6(a) deals with an asset held for sale under IFRS 5, which is related but not a subsidiary. Disposals are examinable, and worked examples 1 to 8 show the layouts. Note: ICAN\u2019s notes are slightly different from ours in the points marked in the notes after worked examples 1, 5 and 6.
Revise first: Worked examples
Questions start by deciding whether control is lost. See the section on part disposals.
Revise first: Part disposals
Source: ICAN Pathfinder, Strategic Business Reporting. Diets covered: No disposal of a subsidiary identified in the November Diet, 2025 or May Diet, 2026 Pathfinders.
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