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IAS 28 — Step-acquisition fair value as deemed cost

Date recorded:

The Committee debated the issue of how to account for changes from available for sale (AFS) category to equity method for an associate purchased by stages. A question had been raised about how to account for an investment in an associate when the investment was purchased in more than one step. IAS 28 is silent on the accounting for an investment in an associate purchased in stages.

The Committee agreed that at the time the investment changes its nature from AFS to Associate should trigger a disposal of the AFS investment, with gains or losses reclassified from other comprehensive income to profit or loss and that the fair value of the total holding establishes the initial carrying amount for equity accounting purposes. This was thought to be consistent with the step acquisition principles in IFRS 3. However, a significant proportion of the Committee was concerned that such an amendment would represent a significant change in principle to IAS 28, one that was beyond the scope of the Improvements Project.

The Committee agreed to refer this issue to the IASB together with its recommendations.

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