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IAS 27 — Investments in a subsidiary accounted for at cost: Partial disposal

Date recorded:

IAS 27 Separate Financial Statements—Investments in a subsidiary accounted for at cost: Partial disposal (Agenda Paper 4A)

Background

In September 2018, the Committee discussed a submission about the accounting in an entity's separate financial statements for disposal of partial interest in a subsidiary that results in losing control of that subsidiary while the retained interest is subsequently accounted for applying IFRS 9 Financial Instruments. The submitter asks whether the entity: (a) can apply the election in IFRS 9:4.1.4 to present subsequent changes in fair value of the retained interest in other comprehensive income (OCI) rather than in profit or loss (Question A); and (b) presents in profit or loss or OCI any difference between the cost and fair value of its retained interest on the date it loses control of Entity B (Question B).

In respect of Question A, the staff consider ‘at initial recognition’ in IFRS 9:4.1.4 refers to the date on which the entity begins to apply the requirements in IFRS 9 to its retained interest (i.e. the date on which it loses control of the subsidiary) and does not refer to the date it originally acquired the interest in the subsidiary. Hence the entity may elect to present subsequent changes in fair value of its retained interest in OCI if the retained interest is not held for trading and the entity would make this irrevocable election at initial recognition of the retained interest applying IFRS 9.

In respect of Question B, IFRS 9:4.1.4 specifies that the presentation election applies to ‘subsequent changes’ in fair value of an investment in an equity instrument––i.e. the changes in fair value that arise after initial recognition. Any difference between the cost and fair value of the retained interest at the date that the entity loses control does not arise after initial recognition of the retained interest applying IFRS 9. The entity shall present in profit or loss any difference between the cost and fair value of its retained interest at the date it loses control of the subsidiary.

In its September 2018 meeting, the Committee agreed with the staff recommendation not to add this matter to its standard-setting agenda but to publish an agenda decision.

Comment letters were received and all respondents support the Committee's conclusions. In response to Question B, two respondents suggest replacing the reference to similar issues in IAS 28:22(b) and IAS 27:11B with a reference to IAS 1:88. The staff recommend that the Committee add the references to IAS 1:88 and the Conceptual Framework in the agenda decision in order to expand the rationale for its conclusion on Question B.

Staff recommendation

The staff recommended finalising the agenda decision as published in IFRIC Update in September 2018 subject to certain changes set out in the staff paper and editorial changes.

Discussion

Subject to certain editoral changes, the Committee decided, by a majority vote, to finalise the agenda decision.

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