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. Calculate the gain or the loss on the partial disposal by Williams of ES as of June 30, Year 2, under both the US GAAP and IFRS. Make sure you show the details of both calculations and provide authoritative references supporting the basis and the reasoning for each of your calculations.

Answer 1

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page No Bat undev US GAAP dkiference adjusted in pavent ovoftt and oss Calculoonu undev both Qre Same basicaly calculate the gohn or the loss on the pavtiol tam.s or Es as gf June 30, year 2 Under Us GIAAPIFRs Cash Received on-the Sale. ot European Subsidiary (Es) 千-5 milfon share ot equity hans terved tofomil'ony25- $1 5 mlbo Gloss "value of Investment | 4bminfonY2万%)#2.5" ition Ne Gaun on ale of 25-. stake