Contribution of subsidiary to form a joint venture or an associate applying IFRS 10 A and B are two major pharmaceutical companies, which agree to form a joint venture (JV Co). A will own 40% of the joint venture, and B 60%. The parties agree that the total value of the new business of JV Co is £250 million.
A”s contribution to the venture is a number of intangible assets, in respect of which A”s consolidated balance sheet reflects a carrying amount of £60 million. The fair value of the intangible assets contributed by A is considered to be £100 million, i.e. equivalent to 40% of the total fair value of JV Co of £250 million.
B contributes a subsidiary, in respect of which B”s consolidated balance sheet reflects separable net assets of £85 million and goodwill of £15 million. The fair value of the separable net assets is considered to be £120 million. The implicit fair value of the business contributed is £150 million (60% of total fair value of JV Co of £250 million). The book and fair values of the assets/businesses contributed by A and B can therefore be summarised as follows:
|
A |
B |
|||
|
(in £m) |
Book value |
Fair value |
Book value |
Fair value |
|
Intangible assets |
60 |
100 |
|
|
|
Separable net assets |
|
|
85 |
120 |
|
Goodwill |
|
|
15 |
30 |
|
Total |
60 |
100 |
100 |
150 |
The application of IFRS 10 to the transaction would result in B reflecting the following accounting entry.
|
|
£m |
£m |
|
Share of net assets of JV Co (1) |
132 |
|
|
Goodwill (2) |
18 |
|
|
Separable net assets and goodwill contributed to JV Co (3) 100 |
100 |
|
|
Gain on disposal (4) |
|
50 |
(1) 60% of fair value of separable net assets of new entity £132 million (60% of [£100 million + £120 million] as in table above). There is no elimination of 60% of the gain on disposal. Under the equity method, this £132 million together with the £18 million of goodwill (see (2) below) would be included as the equity accounted amount of JV Co.
(2) Fair value of consideration given of £60 million (being 40% of £150 million as in table above) plus fair value of retained interest of £90 million (being 60% of £150 million) less fair value of 60% share of separable net assets of JV Co acquired £132 million (see (1) above). Under the equity method, as noted at (1) above, this £18 million together with the £132 million relating to the separable net assets would be included as the equity accounted amount of JV Co.
(3) Previous carrying amount of net assets contributed by B as in table above, now deconsolidated. In reality there would be a number of entries to deconsolidate these on a line-by-line basis.
(4) Fair value of consideration received of £60 million (being 60% of £100 million as in table above) plus fair value of retained interest of £90 million (being 60% of £150 million) less book value of assets disposed of £100 million (see (3) above) = £50 million.