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IAS 28 — Elimination of gains arising from 'downstream' transactions

Background

This project arose from a request to the IFRS Interpretations Committee and was referred to the IASB for resolution.  The Committee requested that the IASB clarify the accounting for a transaction between a joint venturer and its joint venture. The issue relates to the circumstances in which the amount of the gain to eliminate in a downstream transaction in accordance with paragraph 28 of IAS 28 Investments in Associates and Joint Ventures exceeds the amount of the entity’s investment in the joint venture. Specifically, the issue is about whether:

    • the gain from the transaction should be eliminated only to the extent that it does not exceed the carrying amount of the entity’s investment in the joint venture, or
    • the remaining gain in excess of the carrying amount of the entity’s investment in the joint venture should also be eliminated and if so, what it should be eliminated against.

The Committee had noted that the issue applied to an entity’s downstream transactions with both associates and joint ventures. The Committee recommended that a gain from a downstream transaction should be eliminated to the extent of the related investors’ interest in the associate or joint venture, even if the gain to be eliminated exceeds the carrying amount of the entity’s investment in the associate or joint venture, in which case any excess of the carrying amount of the entity’s investment in the entity would be presented as a deferred gain.

The Committee recommended that the IASB should amend IAS 28 through a narrow-scope project to clarify that the eliminated gain that exceeds the carrying amount of the entity’s investment in the associate or joint venture should be presented as a deferred gain. The IASB tentatively agreed with the Committee’s recommendation and added this project to its agenda at the July 2013 meeting.

 

Current status of the project

This project will not be finalised. Instead the IASB issued amendments deferring the effective date of the September 2014 amendments to IAS 28, IFRS 10 and IFRS 12 on 17 December 2015.

 

Project milestones

DateDevelopmentComments
July 2013 Project tentatively added to the IASB's agenda
10 August 2015
ED/2015/7 Effective Date of Amendments to IFRS 10 and IAS 28 published
Comment letter deadline: 9 October 2015
17 December 2015
defers the effective date of the September 2014 amendments to these standards indefinitely

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