At its March 2006 meeting, the Board decided to add a project to its technical agenda to resolve issues in relation to measuring the cost of a subsidiary in the separate financial statements of a parent on first time adoption of IFRSs. Constituents argue that, in some circumstances, it is difficult to determine the cost of an investment in a subsidiary in accordance with IAS 27 Consolidated and Separate Financial Statements on first time adoption of IFRSs.

Three options were considered by the Board:

• 1. Use the previous GAAP cost as deemed cost
• 2. Use the IFRSs carrying value of the net assets of the subsidiary at transition date as deemed cost
• 3. Fair value as deemed cost

Many Board members indicated a preference for option 3 and then 2. However, the Board acknowledged that IFRS 1 is a practical expedient for entities transitioning to IFRS and therefore the exception provided need not be of the highest quality. After some discussion about the exact nature of the problem, which some believe arises only where shares were issued in exchange for an interest in the subsidiary and the value of the business acquired at that date can no longer be determined, compared to a purchase of an interest (for example, by cheque) in which case some Board members believe such records should be retrievable.

It was agreed that the staff should work on developing a model that uses option 2 above to determine the cost of the subsidiary at the date of transition if the information required in IAS 27 cannot be determined. On the issue of determining pre-acquisition profits, the staff would attempt to develop a model that is independent of option 2 but ensuring that the two models are compatible.