Treatment in BOA

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This discussion addresses the accounting treatment for A Ltd concerning a demerger. A Ltd's subsidiary, B Ltd, has transferred a business unit to associate C Ltd. As consideration, C Ltd issued shares directly to the shareholders of B Ltd, including A Ltd. The core question is how A Ltd should record the receipt of C Ltd shares in its books, given that its investment in B Ltd is held at cost and therefore its value won't change. The proposed solution involves proportionately reducing the investment in B Ltd and adding the investment in C Ltd, keeping the total investment value constant.

phaniram

phaniram (Querist)
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23 January 2023 B ltd is subsidiary company to A ltd and C ltd is associate to A ltd. B ltd has disposed a business unit under demerger to C ltd. now C ltd as purchase consideration issued its shares directly to share holders of B ltd. Since A limited is also share holder of B ltd it received shares of C ltd. Now what is the accounting treatment for the transaction in the books of A limited?.

Note: A ltd has recorded investment in subsidiary company B ltd at cost. Therefore there will be no change in value of investment of B ltd in the Books of A ltd after Demerger. But A ltd will receive shares of C ltd the resulting company.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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24 January 2023 Credit investment in B limited and debit investment in C limit to the amount related to business disposed by B.

phaniram

phaniram (Querist)
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26 January 2023 I am asking from A ltd perspective sir

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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26 January 2023 The above entry is for the books of accounts of A.

phaniram

phaniram (Querist)
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28 January 2023 A has recorded investment in B ltd at cost therefore the the amount of investment in B ltd cannot be changed ?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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28 January 2023 Part of investment has gone to C for which C has allotted shares to A.

phaniram

phaniram (Querist)
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29 January 2023 sir, how will A pass its investment to C? what I stated is there is demerger between B and C and as a consideration C ltd allotted its shares to shareholders of B ltd. Since A ltd is also shareholder of B ltd , shares of C ltd will be allotted to A ltd and A ltd recorded investment in B ltd at cost. so there is no scope of changing its value. Now how to bring shares of C ltd in to books of A ltd.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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30 January 2023 Part of investment in B has gone to C so proportionately reduce investment in B and add investment in C.
Total value will not change.

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