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IFRS 3 — Measurement of non-controlling Interest

Date recorded:

The IFRIC considered a request to clarify whether an entity should apply the measurement choice in IFRS 3 Business Combinations to all components of non-controlling interest (NCI).

The question related to whether the change from 'minority interest' to 'non-controlling interest' had broadened the scope of instruments to be included in NCI. Some are of the view that when the Board issued IFRS 3 (Revised) it intended the measurement choice in IFRS 3 (2008).19 to apply only those components of NCI that are equivalent to minority interest (MI) as defined in IAS 27 (2003). In addition, NCI components other than MI should be measured at fair value or the measurement basis required by IFRS. For example a share option under share-based payment awards should be measured in accordance with IFRS 2.

An alternative view is that IFRS 3 (2008) defined NCI as a collective term and sets out the measurement requirements for the aggregate. Nothing in IFRS 3 prevents an entity from measuring components of NCI at other amounts. Practice in applying IFRS 3(2004) demonstrated that some MI components are measured at fair value or other measurement basis.

The IFRIC noted that the measurement basis of NCI is a pervasive and important issue for business combination accounting, and that it was apparent from the staff analysis that divergent views were emerging. The IFRIC considered the staff recommendation that the issue should be referred to the Board for potential inclusion as an annual improvement.

One IFRIC member suggested that the first question to be answered is whether 'the equity in a subsidiary...' in the definition of NCI refers to the net assets of another entity or to its equity instruments, as some equity instruments do not have net assets assigned to them, for example, share options. Other members wanted to know what the Board's intention was with changing the definition of MI to NCI.

After a long discussion of the various equity instruments and their claim on the net assets of an entity, the IFRIC tentatively agreed not to add the item to its agenda, noting that measurement of NCI should be based on the option allowed in IFRS 3 and that components of NCI other than MI should first be measured in accordance with other IFRSs and that the remaining net asset value should then be attributed to NCI. The IFRIC also agreed to refer the matter to the Board.

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