Question

The Williams Company, a U.S.-based company, owns 100% of a European Subsidiary (ES). The investment in ES totals $10 million (euros 13.5 million) as of the end of Year 1. This represents an initial investment of $6 million and retained earnings of $4 million. The Currency Translation Adjustment (CTA) account included in Other Comprehensive Income (OCI) totals $1 million (loss) at the end of Year 1.

During Year 2, Williams decided to sell 25% of ES to the Tremont Company, an unrelated U.S.-based Company for $15 million in cash. The closing date of the transaction is June 30 of Year 2. Earnings of ES for the six months of Year 2 are $1 million and there was an additional increase of $200,000 in the CTA during the first six months of Year 2. No dividends have been paid by ES to Williams.

1. Assume that during January Year 2, ES paid a dividend to Williams of euro 6.75 million ($5 million). How would that dividend be treated by Williams under both the US GAAP and IFRS? What impact, if any, would this dividend have on the CTA account of Williams under both the US GAAP and IFRS? Make sure you show the details of any calculations and provide authoritative references supporting the basis and the reasoning for each of your calculations, if any.

Answer 1

SOLUTION:

According to ASC 810 of US GAAP decline in a parent's possession premium while the parent holds its controlling budgetary enthusiasm for its auxiliary will be represented as value exchanges i.e., speculations by proprietors and circulations to proprietors acting in their ability as proprietors.

No addition or deficit will be perceived in combined total compensation or exhaustive pay.

The conveying measure of the non controlling interest will be acclimated to mirror the adjustment to its greatest advantage in the auxiliary. Any contrast between the reasonable estimation of the thought got or paid and the sum by which the non controlling interest is balanced will be perceived in value inferable from the parent.

Under IFRS , where there is decrease in the possession without losing control, the conveying measures of the conveying and NCI (non controlling Interest) are acclimated to mirror the adjustment in their relative proprietorship interests in the backup. Any distinction between such sum and reasonable estimation of thought balanced directl to value.

Yet, under US GAAP contrast balanced in parent benefit and misfortune.

Count under both are same essentially.

Calculate the gain or the loss on the partial disposal by Williams of ES as of June 30, Year 2.
Under US GAAP /IFRS
Cash received on the sale of European Subsidiary (ES)		$15 MILLION
Gross value of investment sold	($10 million x 25%)	$2.5 MILLION
		$7.5 MILLION
Share of equity transferred to NCI	(10 MILLION *25%)	$2.5 MILLION
Gross value of investment sold	($10 MILLION*25)	$2.5 MILLION
NET GAIN ON SALE OF 25% STAKE		$7.5 MILLION

THANK YOU.