Discuss why the directors of Bread were correct to classify the proposed sale of Jam as a disposal group held for sale within the context of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
(c) The Bread group has always measured the non-controlling interest using the proportional share of the fair value of the net assets method. Bread, Butter and Jam are all listed and therefore have readily ascertainable market value for their shares. The directors of Bread are contemplating changing their policy retrospectively to measuring the non-controlling interest at fair value as a reliable and fair calculation of the non-controlling interest is obtainable.
They are therefore proposing that they analyse the impact of the alternative valuations of the non-controlling interest on a subsidiary by subsidiary basis for current group members and any proposed future acquisitions.
They believe that it is the directors’ responsibility to maximise the wealth of the entity’s shareholders and intend to choose a valuation which will maximise profitability and equity. The directors of Bread have a history of changing accounting policies on a regular basis should they believe that it would have a positive impact on the financial statements.