Big owns 60% of Little and at December 31, 2012, its Investment in Little account stands at $6,000,000. On that date Big sells half its ownership for $4,000,000 cash. a. Prepare the journal entry to be recorded by Big on December 31, 2012. b. Same facts as above, except the sales price is $2,500,000 cash. Prepare the journal entry to be recorded by Big on December 31, 2012.
IFRS requires that the investment stake must be revalued to Fair Value on conversion of the subsidiary to an associate due to a stake sale.
|Gain on Revaluation||2000000|
|Investment in Little||2000000|
Note:- The above approach does not apply in case of part-equity or initial value method.
|Gain on Revaluation||1000000|
|Investment in Little||1500000|
Note:- Alternate ways are there to post the entries but the net effect remains the same in all cases.
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