Topic 104 - Separate Financial Statements

• 104.2.1.1

• IFRIC Agenda Decision - Group reorganisations in separate financial statements

• 104.2.1.2

• IFRIC Agenda Decision - Impairment of investments in associates in separate financial statements

• 104.2.1.3

• IFRIC Agenda Decision - Investment in a subsidiary accounted for at cost: Partial disposal

• 104.2.1.4

• IFRIC Agenda Decision - Investment in a subsidiary accounted for at cost: Step acquisition

• 104.3.1.1

• IFRIC Agenda Decision - Separate financial statements issued before consolidated financial statements

104.2.1.1

IFRIC Agenda Decision - Group reorganisations in separate financial statements

September 2011 - The Interpretations Committee received a request asking for clarification of whether paragraphs 13 and 14 of IAS 27 apply either directly or by analogy to reorganisations of groups that result in the new intermediate parent having more than one direct subsidiary. The request addresses the accounting of the new intermediate parent for its investments in subsidiaries when it accounts for these investments in its separate financial statements at cost in accordance with paragraph 10(a)of IAS 27.

The Committee noted that the normal basis for determining the cost of an investment in a subsidiary has to be applied to reorganisations that result in the new intermediate parent having more than one direct subsidiary. Paragraphs 13 and 14 of IAS 27 apply only when the assets and liabilities of the new group and the original group (or original entity) are the same before and after the reorganisation. The Committee observed that this condition is not met in reorganisations that result in the new intermediate parent having more than one direct subsidiary and that therefore these paragraphs in IAS 27 do not apply to such reorganisations, such as the reorganisations presented in the submission. Furthermore, the Committee noted that the Board explained in paragraph BC27 of IAS 27 that paragraphs 13 and 14 of IAS 27, respectively, do not apply to other types of reorganisations. In addition, the Committee noted that the guidance in paragraphs 13 and 14 of IAS 27 cannot be applied to reorganisations that result in the new intermediate parent having more than one direct subsidiary by analogy, because this guidance is an exception to the normal basis for determining the cost of an investment in a subsidiary under paragraph 10(a) of IAS 27.

As a result, the Committee noted that there is already sufficient guidance in IAS 27. Consequently, the Committee decided not to add this issue to its agenda.

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104.2.1.2

IFRIC Agenda Decision - Impairment of investments in associates in separate financial statements

January 2013 - In the July 2012 meeting, the Interpretations Committee received an update on the issues that have been referred to the IASB and that have not yet been addressed. The Interpretations Committee asked the staff to update the analysis and perform further outreach on an issue about the impairment of investments in associates in separate financial statements. More specifically, the issue is whether, in its separate financial statements, an entity should apply the provisions of IAS 36 Impairment of Assets or IAS 39 Financial Instruments: Recognition and Measurement to test its investments in subsidiaries, joint ventures, and associates carried at cost for impairment.

The Interpretations Committee noted that according to paragraph 38 of IAS 27 Consolidated and Separate Financial Statements an entity, in its separate financial statements, shall account for investments in subsidiaries, joint ventures and associates either at cost or in accordance with IAS 39 [paragraph 10 of IAS 27 (2011) has superseded paragraph 38 of IAS 27 (2008)].

The Interpretations Committee also noted that according to paragraphs 4 and 5 of IAS 36 and paragraph 2(a) of IAS 39, investments in subsidiaries, joint ventures, and associates that are not accounted for in accordance with IAS 39 are within the scope of IAS 36 for impairment purposes. Consequently, in its separate financial statements, an entity should apply the provisions of IAS 36 to test for impairment its investments in subsidiaries, joint ventures, and associates that are carried at cost in accordance with paragraph 38(a) of IAS 27 (2008) or paragraph 10(a) of IAS 27 Separate Financial Statements (2011).

The Interpretations Committee concluded that in the light of the existing IFRS requirements an interpretation or an amendment to IFRSs was not necessary and consequently decided not to add this issue to its agenda.

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104.2.1.3

IFRIC Agenda Decision - Investment in a subsidiary accounted for at cost: Partial disposal

January 2019 - The Committee received a request about how an entity applies the requirements in IAS 27 to a fact pattern involving an investment in a subsidiary.

In the fact pattern described in the request, the entity preparing separate financial statements:

• elects to account for its investments in subsidiaries at cost applying paragraph 10 of IAS 27.
• holds an initial investment in a subsidiary (investee). The investment is an investment in an equity instrument as defined in paragraph 11 of IAS 32 Financial Instruments: Presentation.
• subsequently disposes of part of its investment and loses control of the investee. After the disposal, the entity has neither joint control of, nor significant influence over, the investee.

The request asked whether:

Question A

Paragraph 9 of IAS 27 requires an entity to apply all applicable IFRS Standards in preparing its separate financial statements, except when accounting for investments in subsidiaries, associates and joint ventures to which paragraph 10 of IAS 27 applies. After the partial disposal transaction, the investee is not a subsidiary, associate or joint venture of the entity. Accordingly, the entity applies IFRS 9 for the first time in accounting for its retained interest in the investee. The Committee observed that the presentation election in paragraph 4.1.4 of IFRS 9 applies at initial recognition of an investment in an equity instrument. An investment in an equity instrument within the scope of IFRS 9 is eligible for the election if it is neither held for trading (as defined in Appendix A of IFRS 9) nor contingent consideration recognised by an acquirer in a business combination to which IFRS 3 Business Combinations applies.

In the fact pattern described in the request, assuming the retained interest is not held for trading, the Committee concluded that (a) the retained interest is eligible for the presentation election in paragraph 4.1.4 of IFRS 9, and (b) the entity would make this presentation election when it first applies IFRS 9 to the retained interest (ie at the date of losing control of the investee).

Question B

Any difference between the cost of the retained interest and its fair value on the date the entity loses control of the investee meets the definitions of income or expenses in the Conceptual Framework for Financial Reporting. Accordingly, the Committee concluded that, applying paragraph 88 of IAS 1 Presentation of Financial Statements, the entity recognises this difference in profit or loss. This is the case regardless of whether the entity presents subsequent changes in fair value of the retained interest in profit or loss or OCI.

The Committee also noted that its conclusion is consistent with the requirements in paragraph 22(b) of IAS 28 Investments in Associates and Joint Ventures and paragraph 11B of IAS 27, which deal with similar and related issues.

The Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis for an entity to account for a partial disposal transaction in its separate financial statements. Consequently, the Committee decided not to add this matter to its standard-setting agenda.

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104.2.1.4

IFRIC Agenda Decision - Investment in a subsidiary accounted for at cost: Step acquisition

January 2019 - The Committee received a request about how an entity applies the requirements in IAS 27 to a fact pattern involving an investment in a subsidiary.

In the fact pattern described in the request, the entity preparing separate financial statements:

• elects to account for its investments in subsidiaries at cost applying paragraph 10 of IAS 27.
• holds an initial investment in another entity (investee). The investment is an investment in an equity instrument as defined in paragraph 11 of IAS 32 Financial Instruments: Presentation. The investee is not an associate, joint venture or subsidiary of the entity and, accordingly, the entity applies IFRS 9 Financial Instruments in accounting for its initial investment (initial interest).
• subsequently acquires an additional interest in the investee (additional interest), which results in the entity obtaining control of the investee⁠–⁠–ie the investee becomes a subsidiary of the entity.

The request asked:

Question A

IAS 27 does not define ‘cost’, nor does it specify how an entity determines the cost of an investment acquired in stages. The Committee noted that cost is defined in other IFRS Standards (for example, paragraph 6 of IAS 16 Property Plant and Equipment, paragraph 8 of IAS 38 Intangible Assets and paragraph 5 of IAS 40 Investment Property). The Committee observed that the two approaches outlined in the request arise from different views of whether the step acquisition transaction involves:

Based on its analysis, the Committee concluded that a reasonable reading of the requirements in IFRS Standards could result in the application of either one of the two approaches outlined in this agenda decision (ie fair value as deemed cost approach or accumulated cost approach).

The Committee observed that an entity would apply its reading of the requirements consistently to step acquisition transactions. An entity would also disclose the selected approach applying paragraphs 117⁠–⁠124 of IAS 1 Presentation of Financial Statements if that disclosure would assist users of financial statements in understanding how step acquisition transactions are reflected in reporting financial performance and financial position.

Question B

In applying the accumulated cost approach, any difference between the fair value of the initial interest at the date of obtaining control of the subsidiary and its original consideration meets the definitions of income or expenses in the Conceptual Framework for Financial Reporting. Accordingly, the Committee concluded that, applying paragraph 88 of IAS 1, the entity recognises this difference in profit or loss, regardless of whether, before obtaining control, the entity had presented subsequent changes in fair value of the initial interest in profit or loss or other comprehensive income.

For Question A, the Committee considered whether to develop a narrow-scope amendment to address how an entity determines the cost of an investment acquired in stages. The Committee observed that:

On balance, the Committee decided not to undertake standard-setting to address Question A.

For Question B, the Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis for an entity to determine its accounting.

Consequently, the Committee decided not to add these matters to its standard-setting agenda.

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104.3.1.1

IFRIC Agenda Decision - Separate financial statements issued before consolidated financial statements

March 2006 - The IFRIC considered a comment letter that had been received objecting to the draft reasons for not adding this to the IFRIC’s agenda. The comment letter argued that it is possible to interpret IAS 27 as permitting separate accounts to be published when there is a reasonable expectation that consolidated accounts will be published shortly. IFRIC members rejected this approach on the basis of the current text of the standard and reaffirmed the following text, previously published, of its reasons for not adding the item to its agenda.

The IFRIC considered whether separate financial statements issued before consolidated financial statements could be considered to comply with IFRSs.

The IFRIC noted that IAS 27 requires that separate financial statements should identify the financial statements prepared in accordance with paragraph 9 of IAS 27 to which they relate (the consolidated financial statements), unless one of the exemptions provided by paragraph 10 is applicable. 

The IFRIC decided that, since the Standard was clear, it would not expect diversity in practice and would not add this item to its agenda. [Since this agenda decision, paragraphs 9 and 10 of IAS 27 have been replaced by paragraph 4 of IFRS 10.]

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