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IAS 28 — Inconsistency with paragraph 31 of IAS 28

Date recorded:

This paper describes a new issue that was identified by the IFRS Interpretations Committee during its work on the Exposure Draft Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (proposed amendments to IFRS 10 and IAS 28), which had been published for comment in December 2012.

In July 2013, the Interpretations Committee recommended that the IASB should proceed with the amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (issued in 2011). In October 2013, the IASB tentatively decided to finalise the proposed amendments to IFRS 10 and IAS 28 (2011).

In July 2013, the Interpretations Committee decided that further analysis and discussion are needed before proposing whether or not the IASB should amend or delete paragraph 31 of IAS 28, which is perceived as conflicting with the proposed amendments to IFRS 10 and IAS 28 (2011). This additional issue was raised by some respondents to the proposed amendments. The Interpretations Committee asked the staff to bring a paper to a future meeting regarding this issue.

The issue

Some respondents to the Exposure Draft Sale or Contribution of Assets between an Investor and its Associate or Joint Venture think that paragraph 31 of IAS 28 is not consistent with the proposed amendments to IAS 28. They think that the IASB should amend paragraph 31 of IAS 28 and should require partial gain or loss recognition for all sales and contributions of assets that do not constitute a business (whether those assets are monetary or non-monetary assets and whether the contribution is made in exchange for an equity interest in the investee or in exchange for other assets). In particular, they do not think that the nature of the assets received from the associate or joint venture should warrant a different accounting.

Staff recommendation

The staff thinks that paragraph 31 of IAS 28 is not consistent with the forthcoming amendments to (and the existing requirements of) IAS 28.

On the basis of their assessment against the Interpretations Committee’s agenda criteria, they think that the Interpretations Committee should not add this issue to its agenda as a separate issue, because the transactions within the scope of paragraph 31 of IAS 28 are not common.

However, the staff recommends that the Interpretations Committee should propose to the IASB to include this issue in the proposed narrow-scope amendments to IAS 28 Elimination of gains arising from ‘downstream’ transactions, because on the basis of the staff’s analysis there is an inconsistency within IAS 28 and no significant unintended consequences are expected from the deletion of paragraph 31 of IAS 28.

Questions for the Interpretations Committee

  1. Does the Interpretations Committee agree that paragraph 31 of IAS 28 is not consistent with the forthcoming amendments to (and the existing requirements of) IAS 28?
  2. Does the Interpretations Committee agree with the staff’s recommendation that the Interpretations Committee should recommend the IASB to include this issue in the proposed narrow-scope amendments to IAS 28 Elimination of gains arising from ‘downstream’ transactions?

There was agreement amongst the members that paragraph 31 of IAS 28 is not consistent with the forthcoming amendments to (and the existing requirements of) IAS 28.

One member disagreed with the staff’s comment in paragraph 26 of the paper that transactions within the scope of paragraph 31 of IAS 28 are not common.

The staff noted that this paper had been prepared on the basis that the staff would propose to the Board that they include this deletion within the next exposure draft on equity accounting, which is about to go through the process of balloting and publishing, and that relates to the elimination of the gain on a transaction when the level of investment drops below zero. 

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