The IFRIC continued its discussion of the accounting for non-cash distributions, formerly called 'demergers and other in-specie distributions' (see July IFRIC Meeting Notes). The discussion at this meeting concentrated on the following issues:

• How should an entity measure non-cash distributions and the corresponding dividends payable?
• At the time an entity makes the distributions, how should any difference between the dividends payable and the carrying amount(s) of the asset be accounted for?
• Should there be any exceptions to the measurement principle?
• Should IFRS 5 Non-current Assets Held for Sale and Discontinued Operations be applied to the assets to be distributed after an entity declares non-cash distributions?

How should an entity measure non-cash distributions and the corresponding dividends payable?

The IFRIC noted that when an entity declares a non-cash distribution to its equity holders, it has an obligation to deliver non-cash assets. Accordingly, the journal entry would debit distributable reserves (equity) and credit dividends payable.

With regard to the measurement of the dividends payable the IFRIC considered the following three alternatives:

Alternative 1

All dividends payable should be measured in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

Alternative 2

All dividends payable should be measured in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Alternative 3

Dividends payable should be measured in accordance with IAS 37 or IAS 39 depending on the type of asset to be distributed.

The IFRIC tentatively decided that dividends payable should be measured in accordance with IAS 37 (Alternative 2).

Under alternative 2 the initial measurement of the dividends payable should be based on the fair value of the assets to be distributed as the fair value of the assets represents the best estimate to settle the obligation. The IFRIC emphasised that the focus of this project was on measurement of the liability, rather than asset measurement.

At the time an entity makes the distributions, how should any difference between the dividends payable and the carrying amount(s) of the asset be accounted for?

The IFRIC noted that the project addresses situations in which the entity distributes 'something valuable to its equity holders' and that in these situations the fair value of the distribution should be known.

The IFRIC pointed out that any difference between the carrying amount of the asset and the dividend payable (measured with reference to the fair value of the asset) should result in a credit entry to be made. The IFRIC noted that any credit amount arises as a result of the settlement of the dividends payable, that is, the derecognition of a liability.

The IFRIC tentatively decided that the difference arising at the time an entity settles its dividends payable should be recognised in comprehensive income.

Staff was directed to proceed with the project considering alternative accounting treatments of the credit entry in other comprehensive income. The paper is to be brought back to the next meeting.

Should there be any exceptions to the measurement principle?

The IFRIC then discussed whether any exceptions should be made to this measurement principle in situations in which the fair value of the distributed assets cannot be measured reliably, for instance, ownership interests not traded in active markets, intangible assets not recognised in the financial statements of the entity or common control transactions. The IFRIC tentatively decided that no exceptions should be made for ownership interests not traded in active markets or intangible assets not recognised in the financial statements of the entity. Regarding common control transactions the IFRIC tentatively concluded that common control transactions were outside the scope of the project, and therefore no exception was required.

Should IFRS 5 Non-current Assets Held for Sale and Discontinued Operations be applied to the assets to be distributed after an entity declares non-cash distributions?

The IFRIC acknowledged that a distribution is not a sales transaction. Consequently, the IFRIC tentatively decided that after declaration of the distribution, an entity should not apply the measurement and disclosure requirements in IFRS 5 to the assets to be distributed. However, IFRIC acknowledged that the disclosures required by IFRS 5 would be useful to users. Staff was directed to prepare a paper for the next IFRIC meeting that considers two alternatives:

1. A recommendation to the Board of amendments to IFRS 5 to include distributed assets within the scope of the standard.
2. Disclosures to be included within a draft Interpretation requiring disclosure of information equivalent to that required by IFRS 5. This alternative should ensure any such disclosures do not conflict with the requirements of other Standards.