Sale of shares in subsidiaries

According to the Accounting Act, shares purchased in other entities are treated as financial instruments classified as investments. Acquired shares are entered into the accounting books at the purchase price, so long as the costs of the transaction are not significant. Article 35.1 of the Accounting Act, also requires that financial assets acquired by a given entity be entered into the accounting books on the day of their acquisition at their specified purchase price. However, the difference between the nominal value of shares and the purchase price is not entered in the buyer's accounting books. The sale of shares in subsidiaries is a common activity. 

Types of financial assets

Settlement of financial transactions in the seperate financial statement is relatively simple. Transaction costs are the current value of net financial assets, i.e. their purchase price or their purchase price reduced by later write-downs, if any were made. Such transactions must be recorded in a timely and appropriate manner in the financial statements and accounting books. The following types of financial asset transactions can be distinguished:

• sale of a minority stake – i.e. usually less than 20%,
• sale of a stake to an affiliate in the range of 20% to 50%,
• sale of a stake to an affiliate in excess of 50%

In affiliates, shares are valued in the consolidated financial statements based on the equity method. With reference to the method used, the financial report recognizes shares in the entity's profits and losses depending on the generated financial results. In the seperate financial statement only a write-down for permanent impairment is recorded.

Sale of shares - affiliate

Goodwill on consolidation is recognized as the difference between the price corresponding to the part of net assets in the subsidiary, which was determined at fair value and the purchase price of shares in the subsidiary. What is shown in the consolidated profit and loss account in the case when the sale of shares in a subsidiary occurred during the financial year? The following should be shown in such a consolidated account:

• the operating result achieved by the subsidiary until the date of sale by the parent company of the shares,
• the sale result of the subsidiary, which has been established as the difference between revenues resulting from the sale of shares and net assets, which are determined according to their market value, which corresponds to the share of the parent in the subsidiary's capital and is adjusted by the undisclosed portion of the consolidated value of the company that applies to the sold subsidiary.