So what is the accounting in the group financial statements where some shares in, say a 30% associate are sold, but a residual of 5% remains?
Explanation in words
Here we are talking about the disposal of an associate. This is because it is assumed that a holding of 5% does not result in significant influence. Technically therefore we are fully de-recognising the associate from the group accounts. Equity accounting will therefore cease.
On the disposal of an associate a gain or loss is recognised in PL.
The 5% residual holding represents an investment that will be initially recognised at fair value. In future the 5% being a financial asset and an equity investment, it will have to be subsequently measured at fair value. The default categorisation being FVTPL; but there is an irrecoverable option to classify at FVTOCI.
Explanation in numbers
Let me give an example with numbers just to illustrate. Lets run with the carrying value of the 30% associate at $300 and the proceeds of selling the 25% being $500 and the FV of the remaining 5% is $100.
In the language of journals the accounting
Dr Cash $500 (hello proceeds)
Cr Investment in associate $300 (goodbye all the associate)
Dr 5% Investment $100 (hello investment)
Cr Profit and loss $300 (balancing figure representing the profit on disposal)
Or if you prefer a proforma then the gain on the disposal can be determined as follows
Proceeds (25%) 500
Less carrying value of the investment (30%) (300)
Plus the residual interest (5%) 100
Profit on disposal 300
So this one small problem has required some understanding of IAS 28 Associates; IFRS 9 Financial Instruments; and IFRS 13 Fair Value Measurement!