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IAS 27 and SIC-13 — Definition of the term 'non-monetary asset'

Date recorded:

The Committee received a request for clarification on whether a business meets the definition of a ‘non-monetary asset´, specifically whether the requirements of SIC-13 and IAS 28 apply when a business is contributed to either a jointly controlled entity (JCE) under IAS 31, a joint venture (JV) under IFRS 11 or to an associate in exchange for an equity stake in the entity.

This issue arises from the inconsistency between IAS 27 and SIC-13 in dealing with loss of control of a subsidiary contributed to a JCE, JV or associate. The transactions in the scope of this issue include 1) contributions of an interest in a subsidiary to a JCE, JV or associate in exchange for an equity interest in the entity and 2) sales of an interest in a subsidiary by a joint-venturer to a JCE, JV or by an investor to an associate in exchange for cash.

At the January 2012 Committee meeting, the Committee believed that the issue should be considered as part of a broader Board project but given the uncertainty for timing over such a project, the Committee also asked the staff to perform further analysis on how the Board could address this issue.

The staff identified five potential alternatives that could resolve the inconsistency. The first alternative would be to account for all contributions similarly in accordance with the rationale developed in IAS 27. The second alternative would be to account for all contributions of businesses (whether through a subsidiary or not) under IAS 27 and account for all other contributions under SIC-13. The third alternative would account for all contributions to a JCE, JV or associate under SIC-13. The fourth alternative would account for all direct contributions (whether a business or not) to a JCE, JV or associate under SIC-13 and account for all indirect contributions under IAS 27. The fifth alternative would be to account for direct contributions of assets that do not constitute a business to a JCE, JV or associate under SIC-13 and account for all other contributions under IAS 27.

The staff recommend either the first or second alternative. They believe that the first alternative would be a broad project that would require a review of existing literature while the second alternative could be implemented more easily. The Committee also had mixed preferences for either the first or second alternative. The Committee agreed for the staff to provide this analysis to the Board noting the Committee´s recommendations of either the first or second alternative.