Definition of View to Resale
In the complex galaxy of financial reporting, “View to Resale” refers to a specific basis under which a subsidiary can be excluded from the consolidated financial statements of a parent company. This occurs when the parent’s interest in the subsidiary is held solely for the purpose of reselling it, rather than for long-term integration into the group’s business operations.
Criteria for Exclusion from Consolidation
According to the stringent scribbles of Section 27 of the Financial Reporting Standard Applicable in the UK and Republic of Ireland, and the sleek lines of International Financial Reporting Standard (IFRS 5), Non-Current Assets Held for Sale and Discontinued Operations, exclusion is permitted when:
- The holding is strictly temporary with an intent to sell.
- The subsidiary was not previously reported in consolidated accounts by the parent.
- It must be measured on the balance sheet either at cost minus any impairment or at fair value.
This financial maneuver turns the subsidiary from a potentially complicated line item into a nifty current asset, awaiting its next grand debut on the market stage.
Implications of Exclusion
Excluding a subsidiary on these grounds simplifies the consolidated financial statements but carries with it the echo of strategic decision-making:
- Financial Impact: Classifying a subsidiary as a current asset affects liquidity ratios and might wave a flag for analysts about the group’s strategy.
- Regulatory Compliance: The move must be defensible under IFRS 5, which keeps everyone on their toes and auditors busy with their magnifying glasses.
Practical Considerations
Before attempting this financial high-wire act, parent companies should ensure:
- They have a buyer lined up, or at least a very convincing sales strategy.
- Comprehensive documentation justifying the exclusion under the ‘view to resale’ grounds.
- A crystal clear vision for what to do if the subsidiary doesn’t sell — aside from collecting dust as a balance-sheet decoration.
Related Terms
- Consolidated Financial Statements: Integrated reports that combine the financials of a parent company and its subsidiaries.
- Current Asset: Assets expected to be sold or consumed within a year, now starring the temporarily held subsidiary.
- IFRS 5: An international financial reporting standard concerning the treatment of non-current assets held for sale.
Further Reading Suggestions
To deepen your thrilling journey into financial standards and subsidiaries acting as the financial world’s hot potatoes, consider these gripping reads:
- “International Financial Reporting Standards (IFRS) Made Easy” by Ann Tarca.
- “The Interpretation of Financial Strategies” by Tom Clendon and Fred Thomson, where commodities and assets waltz around each financial year.
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