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IFRIC D23 'Distributions of Non cash Assets to Owners'

Date recorded:

Approve drafting changes decided at the July IFRIC meeting

The staff explained the various changes made to the draft Interpretation in response to comments received both from constituents and IFRIC members. Some IFRIC members noted that the examples on the scope should be clearer and that the reporting entity should be, for the avoidance of doubt, a publicly listed company. It was agreed that the staff will rework (and possibly expand) the Illustrative Examples. On that note, it was confirmed that the final Interpretation would create a difference with US GAAP.

Regarding measurement of the dividend payable, the IFRIC discussed whether the Interpretation should prescribe the measurement attribute for the dividend liability. One member noted that difficulties arise when the dividend is neither a financial instrument in scope of IAS 39 Financial Instruments: Recognition and Measurement nor an IAS 37 Provisions, Contingent Liabilities and Contingent Assets liability, as there is no general Standard on liabilities, so the sole reference would be the Framework. The redraft defined fair value of the assets distributed as the measurement attribute. Responding to comments by members, the staff agreed to change the words to state that the dividend payable is measured by reference to the fair value of the assets to be distributed (as stated in the original draft). It was noted that the reason IFRIC referred to fair value was to ensure that all non-cash distributions are measured consistently.

The staff noted that it has expanded the rationale in the Basis for Conclusions explaining why the difference between the carrying amount of the asset to be distributed and the dividend payable (if any) is recognised in profit or loss – rather than in equity. One IFRIC member proposed to keep the alternative view of equity treatment in the Basis for Conclusions. The Chairman reminded the IFRIC that final Interpretations usually do not contain alternative views and that any alternative included must be accompanied with reasons it had been rejected.

On the drafting changes made on the basis of other decisions made in the July IFRIC meeting, the members had a short debate on whether to require presenting the difference between the carrying amount of the asset to be distributed and the dividend payable (if any) as a separate item of profit or loss, because IAS 1.85 would already require separate presentation of material items. It was argued that this would increase discipline in presentation and avoid grouping such transactions with other gains from disposals.

The redraft also reflected the decision made by IFRIC to amend IFRS 5 Non-current Assets Held for Sale and Discontinued Operations to scope in non-cash distributions. The amendments to IFRS 5 would introduce guidance that would require entities to include the probability of shareholders' approval to the distribution in assessing the high probability of the transaction occurring, which is a requirement for IFRS 5 to apply. It was agreed that this guidance was also considered useful for 'normal' IFRS 5 transactions and that the IFRIC should recommend to the Board to include such guidance for other disposals covered by IFRS 5.

Discussion of the issue of the accounting mismatch

The IFRIC discussed this issue briefly. It was agreed that the accounting mismatch (asset to be distributed generally at cost, dividend payable by reference to fair value of that asset) is similar to other mismatches that occur frequently in IFRSs due to different measurement attributes applied. It was agreed not to ask the Board to allow upward measurement of the asset to be distributed above its cost and to keep the requirements as set out in the draft Interpretation. However, it was agreed to draft the Basis for Conclusions carefully to explain the rationale behind this conclusion.

Approve the staff proposal regarding minor issues

The staff explained that it would not discuss the minor issues unless IFRIC members wished to discuss particular issues. One member agreed with one comment made regarding the situation where the fair value of the dividend payable cannot be determined reliably. It was agreed to amend the Basis for Conclusions to make clear the rationale of IFRIC on its conclusion. Another IFRIC member agreed with a comment made on one of the illustrative examples. It was agreed to amend or delete the example.

Consider re-exposure

As the redraft of the Interpretation does not differ significantly from the original Draft Interpretation, IFRIC agreed that re-exposure was not required.

Approving the Interpretation

The staff then asked the IFRIC whether it approved the consensus reached in D23. The IFRIC confirmed the consensus with four dissenting votes.

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